Yen's Sharp Drop Sparks Rate Check Speculation and Euro Uncertainty

Currency markets are focused on the yen after its sharp drop last week sparked speculation of a rate check from Tokyo. The yen was a touch firmer at 156.64 per US dollar, but Japan's markets were closed for a three-day holiday due to low liquidity.

The Bank of Japan raised rates on Friday to their highest level in 31 years, but the widely expected move did not boost the yen as two dissenting votes and a lack of explicitly hawkish guidance disappointed investors.

Traders view rate checks as a precursor to currency intervention. The BOJ's messaging has become harder because the Fed delivered a hawkish signal with its unanimous decision to raise its policy rate.

The euro was little changed at $1.1482 after state elections in northeastern Germany showed the far-right Alternative for Germany (AfD) took first place, in a blow to Chancellor Friedrich Merz's conservative party.