BOJ Rate Hike Fails to Boost Yen as Intervention Jitters Persist

The Japanese yen steadied on Monday after a sharp drop last week that raised concerns about possible intervention by the Bank of Japan. The currency had declined 2% last week, but its value has since recovered to 156.85 per US dollar.

Despite the BOJ's rate hike to 1.25%, the highest level in 31 years, investors were disappointed by the two dissenting votes and lack of explicit hawkish guidance. This led to a sharp drop in the yen before reports emerged that Japanese officials conducted rate checks, often seen as a precursor to currency intervention.

The BOJ's messaging has become harder following the Federal Reserve's unanimous decision to raise its policy rate, according to Fred Neumann, chief Asia economist at HSBC. He said investors may test the resolve of the BOJ in the coming weeks and months to push rates higher and match the Fed's tightening.

The yen had firmed up to its strongest level in seven months earlier this month as traders wagered on a faster pace of BOJ hikes and early signs of repatriation by Japanese investors. However, it has since surrendered some of those gains, with speculators increasing net long-yen positions in the week to September 15.