While the rebound was modest, it reflected a cautious pause by market participants who are increasingly unsure how far the yen can weaken without provoking a response from Japanese authorities.
BOJ signals openness to further rate hikes
Support for the yen came in part from fresh signals out of the Bank of Japan (BOJ). A summary of opinions from the central bank’s December policy meeting, released on Monday, showed that several policymakers believe further interest rate increases may be necessary.
At that meeting, the BOJ raised its benchmark policy rate to 0.75 per cent, the highest level in three decades, from 0.5 per cent. Despite the hike, policymakers acknowledged that real interest rates remain deeply negative when adjusted for inflation, reinforcing arguments for continued tightening.
The debate highlights a gradual but notable shift in Japan’s long-standing ultra-loose monetary stance, even as markets remain uncertain about the pace and extent of future increases.
Intervention warnings temper yen selling
Another factor limiting aggressive selling of the yen has been repeated warnings from Japanese officials. Finance Minister Satsuki Katayama said last week that Japan retains full discretion to respond to excessive currency movements, a statement widely interpreted as a reminder that intervention remains an option.
According to Bart Wakabayashi, Tokyo branch manager at State Street, those warnings have discouraged large dollar-yen positions, even as broader pessimism about the yen persists.
“Long positions in yen have been quite painful,” Wakabayashi said, noting that investors are increasingly expressing bearish views through other currency pairs rather than directly against the dollar. In particular, he pointed to growing short positions in crosses such as Aussie-yen.
He added that the market is still struggling to redefine the yen’s traditional role as a safe-haven currency in a world of higher global interest rates and shifting geopolitical risks.
Dollar softens, euro finds support
In early trading, the yen strengthened about 0.3 per cent to 156.13 per dollar, reversing part of Friday’s 0.5 per cent decline.
The broader dollar also eased. The dollar index, which tracks the greenback against a basket of major currencies, slipped 0.1 per cent to 97.96. The euro edged higher by 0.1 per cent to $1.1780, buoyed by geopolitical developments.
Support for the single currency followed comments from U.S. President Donald Trump, who expressed optimism about progress toward a peace deal to end the war in Ukraine.
Ukraine peace signals lift sentiment
Speaking after a meeting with Ukrainian President Volodymyr Zelenskiy at Trump’s Mar-a-Lago resort in Florida, the U.S. president said both sides were “getting a lot closer, maybe very close” to an agreement, though he acknowledged that key issues remain unresolved.
Trump said it should become clear “in a few weeks” whether negotiations would succeed. The comments helped underpin the euro by easing geopolitical uncertainty, even if markets remain cautious about the likelihood and durability of any eventual deal.
Markets await Fed minutes
With few major economic releases scheduled, investors’ attention is turning to the minutes of the U.S. Federal Reserve’s December meeting, due on Tuesday. The minutes are expected to provide further insight into how policymakers view the balance between inflation risks and the need for eventual rate cuts in 2026.
In the Asia-Pacific region, currencies were largely stable. The Australian dollar was little changed at $0.6714, while the New Zealand dollar held steady at $0.5830.
Crypto edges higher
Cryptocurrency markets also saw modest gains. Bitcoin rose 0.6 per cent to $88,083, while ether climbed 1.1 per cent to $2,967, tracking the slightly softer dollar and a tentative improvement in global risk sentiment.
Cautious calm heading into year-end
Overall, Monday’s trading reflected a cautious calm as markets navigate low liquidity and conflicting signals. While Japan’s shift toward higher interest rates and intervention warnings have provided some support for the yen, uncertainty over its longer-term role—and the global policy outlook—continues to weigh on investor confidence heading into the end of the year.