Yen Volatility Sparks Intervention Watch as BOJ Rate Hike Fails to Boost Currency

The yen has been volatile in recent days, sparking speculation of rate checks from Tokyo and prompting intervention watch from currency markets. The Japanese currency was firmer at ​156.64 per US dollar on Monday after dropping 2% last week. Despite the Bank of Japan's decision to raise rates to their highest level in 31 years to 1.25%, the yen did not benefit as much as investors had expected.

Japanese officials reportedly conducted rate checks, which traders see as a precursor to currency intervention. This move comes after the Federal Reserve and European Central Bank also raised rates this month, warning of further tightening to combat inflation due to the ongoing war in the Middle East.

According to Fred Neumann, chief Asia economist at HSBC, the BOJ's messaging has become harder since the Fed delivered a hawkish signal with its unanimous decision to raise its policy rate. The yen had firmed up to its strongest level in seven months in early September but has since surrendered some of those gains.