By Kevin Buckland and Harry Robertson
TOKYO/LONDON (Reuters) – The yen held steady on Monday, with sentiment still fragile after the Japanese currency’s best weekly rally since late April, due to shifting interest rate expectations and a stock market sell-off.
Traders are now looking ahead to policy decisions from the Bank of Japan and the Federal Reserve, both on Wednesday, for further direction. Growing speculation about a BOJ rate hike this week has boosted the yen, with the Fed widely expected to pave the way for a rate cut in September.
Investors were also wary of further geopolitical volatility, with Israel weighing a response to a deadly rocket attack on the Israeli-occupied Golan Heights, which Israel and the United States blamed on the Lebanese armed group Hezbollah.
The dollar was last down 0.1% at 153.64 yen, reversing an earlier decline of as much as 0.49% to reach a high of 153 at one point.
“Sentiment remains fragile,” said Shinichiro Kadota, currency and interest rate strategist at Barclays in Tokyo.
Ultimately, “US stocks are still key,” Kadota added, referring to the demand for safe haven currencies like the yen seen during last week’s stock market crisis. “Market moves have been led by US stocks, and we need to see if things stabilize there.”
Data released Friday showed investors have sharply scaled back their bets against the yen, which was trading at a 38-year low early this month.
The US earnings calendar is filled with heavyweights this week, including Amazon (NASDAQ:), Apple (NASDAQ:), Meta (NASDAQ:) and Microsoft (NASDAQ:).
The , which measures the currency against the yen and five other major currencies, rose 0.13% to 104.51. The euro fell 0.21% to $1.0832.
Currency traders will also have to deal not only with the BOJ and the Fed on Wednesday, but also with the Bank of England a day later.
Sterling fell 0.41% to $1.2813 as investors looked ahead to the BoE meeting, where the market sees the chances of a first rate cut as a coin toss. British government bond yields fell on Monday, causing the pound to fall.
Speculation is mounting that the BOJ will raise rates on Wednesday while significantly reducing its monthly bond purchases.
The US Federal Open Market Committee (FOMC) is widely expected to leave interest rates unchanged this week but cut them by a quarter of a point at its next meeting in September.
The Fed’s decision is the “big event” and poses a risk to the dollar/yen pair, said Kristina Clifton, senior economist and chief currency strategist at the Commonwealth Bank of Australia (OTC:).
“Any indication of FOMC easing could ease significantly, but an aggressive FOMC is likely to have little impact,” she added.
Elsewhere, the Australian dollar held steady at $0.6545, attempting to recover from Friday’s low of $0.65105, a level not seen since early May.
Leading cryptocurrency bitcoin rose 3% to $69,490, drawing some support from positive comments from Republican presidential candidate Donald Trump, who told a bitcoin conference on Saturday that the US must dominate the sector or China would.
