The yen hit its strongest in seven months on Monday, extending recent gains driven by bets on a faster pace of Bank of Japan tightening, and the potential for Japanese investors to shift their funds home.
Monday's move reinforces the view of some market watchers that the tide may now be turning for the battered yen, as a host of factors finally smoke out traders who had spent years betting against the Japanese currency.
New tailwinds from capital repatriation, unwinding carry trades and US political pressure, as well as expectations of a faster pace of interest rate hikes by the BOJ are all combining to provide support for the currency, which hit 40-year lows on the dollar in August.
On Monday, the dollar was last down over 1 percent on the day at 154.58 yen, its lowest since February.
Its fall gathered pace after breaking past its August lows hit in the aftermath of joint US-Japanese intervention to support the yen.
Traders and analysts said it appeared stop-loss orders — automatic instructions to buy or sell once a currency reaches a pre-set level — were triggered around 155 yen per dollar, which accelerated the move.
But the big question for longer-term investors is what comes next.
"We could be getting to a tipping point," Lee Hardman, senior currency analyst at MUFG, said.
"The market had seen it as a one-way trade, that the yen would continue to weaken, but we're starting to see the first signs that with the Bank of Japan picking up the speed of rate hikes, narrowing yield differences starting to have an effect on the yen."
Traders generally remain alert to the risk of further official intervention to support the currency, and said Monday's thin liquidity due to a public holiday in the US could provide an attractive environment for intervention.
However, they said there was no large surge in volume, which would typically be seen during intervention, and the move could be explained by the breach of those key levels.
Japan's finance ministry, which is responsible for currency intervention, had no immediate response.
The yen also strengthened against other currencies, pushing the euro down 1.1 percent to 179.45 yen and the pound down by a similar amount to 209 yen.
Reuters
