Yen's Sharp Drop Sparks Speculation of Intervention

Currency markets are focused on the yen after its sharp drop last week, which has sparked speculation of an official intervention to prop up the volatile currency. The yen was a touch firmer at 156.64 per US dollar on Monday, but Japan's three-day holiday kept traders on alert for such a move.

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 lack of explicitly hawkish guidance disappointed investors. This led to a sharp decline before reports emerged that Japanese officials conducted rate checks, which traders view as a precursor to currency intervention.

Fred Neumann, chief Asia economist at HSBC, said the BOJ's messaging has become all the harder because the Federal Reserve delivered a hawkish signal with its unanimous decision to raise its policy rate. The yen had firmed to its strongest level in seven months in early September as traders wagered on a faster pace of BOJ hikes and early signs of repatriation by Japanese investors, but has since surrendered some of those gains.