Tokyo on High Alert as Yen Volatility Continues

The yen's recent decline has sparked speculation of a rate check from Tokyo, prompting market watchers to keep a close eye on currency markets. The yen firmed up slightly at 156.64 per US dollar after dropping 2% last week, but low liquidity due to Japan's three-day holiday has traders on high alert for an official intervention.

The Bank of Japan raised rates to their highest level in 31 years on Friday, but the move failed to boost the yen as two dissenting votes and a lack of explicitly hawkish guidance disappointed investors. The BOJ's messaging has become increasingly challenging due to the Federal Reserve's unanimous decision to raise its policy rate, according to Fred Neumann, chief Asia economist at HSBC.

The euro was little changed at $1.1482 after state elections in northeastern Germany saw the far-right Alternative for Germany take first place, dealing a blow to Chancellor Friedrich Merz's conservative party. ING economists noted that years of economic stagnation contributed to the fragmentation and made it harder to escape.