Currency Fluctuations: Yen's Unpredictable Climb and Market Reactions

A detailed overview of recent movements in the yen-dollar exchange rate, the implications of Fed and Bank of Japan policy decisions, and their impact on global markets. The piece also touches on economic indicators such as German sentiment and U.S. retail sales, and highlights key developments in Asia-Pacific markets.

Tokyo traders returned on Tuesday from a three-day holiday weekend, showing little inclination to repeat the yen's low-liquidity climb to the strong side of 140 per dollar, where it made a brief appearance on Monday.

This week, the dollar/yen pair and the 140 milestone are in the spotlight, with the Fed expected to begin a U.S. easing cycle and the Bank of Japan charting a path to interest rate hikes. Market pricing for an outsized 50-basis-point Fed hike on Wednesday escalated to 67% on Tuesday, up from 30% a week ago.

The yen has surged more than 12% since hitting a 38-year low in early July due to narrowing gaps between U.S. and Japanese rates. If it pushes firmly through 140, it could challenge last January's peak of 127.215 per dollar. This would also affect corporate exchange assumptions and add momentum for yen buyers. Ahead of the Fed's decision, German sentiment surveys and U.S. retail sales figures are expected to show declines.

(With inputs from agencies.)