By Kevin Buckland
TOKYO (Reuters) – The yen edged up on Monday, reversing earlier declines, as sentiment remained fragile after the Japanese currency’s best weekly rise since late April following a sharp drop in U.S. technology stocks that sparked demand for safe-haven assets.
Traders are now awaiting policy decisions by the Bank of Japan and the Federal Reserve on Wednesday to determine direction. Growing speculation of a rate hike by the Bank of Japan this week has helped support the yen, and the Fed is widely expected to pave the way for a rate cut in September.
Investors also expressed concern about further geopolitical volatility as Israel considers a response to a deadly rocket attack in the occupied Golan Heights, which Israel and the United States blamed on the Lebanese militant group Hezbollah.
The dollar fell in the latest trading by 0.14% to 153.51 yen after falling by about 0.49% to a peak of 153 yen earlier.
Gold started the day up 0.36%, as the global stock market rally from Friday extended into Monday in Asia, with the Japanese market up more than 2%.
The dollar fell to 151.945 on Thursday for the first time since May 3, and ended the week down 2.4%.
“The dollar’s rally against the yen seemed to have stopped” following the Israel news, though the reason was not yet clear, said Shinichiro Kadota, a currency and interest rate strategist at Barclays in Tokyo. “Sentiments are still fragile,” he added.
“Ultimately, US stocks are still the key,” Kadota added. “US stocks have led the market, and we need to see if things stabilize there.”
This week’s US earnings calendar features a slew of heavyweights including Amazon (NASDAQ:), Apple (NASDAQ:), Meta (NASDAQ:), and Microsoft (NASDAQ:).
Currency traders also need to deal not only with the Bank of Japan and the Federal Reserve on Wednesday, but also with the Bank of England the following day.
Speculation has been growing that the Bank of Japan will raise interest rates on Wednesday at the same time as it sharply reduces its monthly bond purchases. The bank had promised to clarify its plans for quantitative easing at this meeting at its previous meeting last month.
Elsewhere, the Federal Reserve is widely expected to leave interest rates unchanged this week, but could cut them by a quarter-point at its next meeting in September.
“The pound was overvalued but the momentum is firmly against this currency pair now,” said Christina Clifton, senior economist and currency strategist at Commonwealth Bank of Australia.
She said the FOMC decision was a “big event” and the risks to the dollar and yen were “asymmetric.”
“Any hints of FOMC easing could send USD/JPY lower, but a hawkish FOMC would likely have little impact,” she added.
The dollar index, which measures the currency against the yen, euro, pound and six other major currencies, fell 0.1% to 104.27.
The euro fell 0.06 percent to 166.76 yen, and was steady at $1.0858.
The pound was steady at 84.35 pence, not far from its high of 84.48 pence hit on Friday, its strongest since July 10.
The pound rose 0.07% to $1.2875.
Markets see the chances of the Bank of England cutting interest rates for the first time on Thursday as slim.
Elsewhere, the Australian dollar rose 0.07% to $0.6562, trying to recover from Friday’s low of $0.65105, a level not seen since early May.
Leading cryptocurrency Bitcoin rose 3.35% to $69,700, getting some support from positive comments from Republican presidential candidate Donald Trump, who told a Bitcoin conference on Saturday that the United States must dominate the sector or China will.
