Yen Gains Hang in Balance as Fed Rate Decision Looms

The yen's recent four-week climb is facing a critical test as the Federal Reserve prepares to announce its interest rate decision on Wednesday. The size of the Fed's move could decide whether Tokyo's currency gains hold or reverse.

The yen traded at 153.49 per dollar on Monday, just off the seven-month high reached last week. Speculators have turned net-long on the yen for the first time since February, marking a shift in positioning.

According to MUFG analysts, a quarter-point hike is already largely priced into markets, but the bank said the yen needs a signal of faster future hikes to strengthen further.

TD Securities warned that if the Bank of Japan leaves further hikes off the table for October and December, it could send dollar/yen back toward the 157 to 160 zone.