Volatile yen draws intervention watch, other currencies subdued

Business Recorder reported that currency traders focused on the Japanese yen on Monday after its sharp fall last week fuelled speculation that Tokyo might carry out a rate check. The yen edged up to 156.64 per US dollar, having dropped 2% over the previous week, while Japan's markets were shut for a three-day holiday, leaving liquidity thin and traders alert to a possible official intervention.

The Bank of Japan lifted its policy rate to 1.25% on Friday, the highest in 31 years, but the widely anticipated decision failed to support the currency. Two dissenting votes and the absence of clearly hawkish guidance disappointed investors, and the yen slid sharply before the Nikkei newspaper reported that officials had conducted rate checks. A rate check is when authorities ask banks for currency quotes to assess market conditions, a step traders see as a possible prelude to intervention.

The Federal Reserve and the European Central Bank also raised rates this month, and both signalled that further hikes could be needed to curb inflation. Fred Neumann of HSBC argued that the BOJ now faces a tougher task in communicating its stance after the Fed's unanimous hike signalled a hawkish tone. The dollar index held at 100.23, and traders now put a 55% chance on another Fed hike in October, compared with 42.5% a week before.