The yen hit a three-week low on Monday on expectations the Bank of Japan could start lending to banks at negative rates, while sterling hit a five-week high in reaction to President Barack Obama urging Britons to stay in the European Union.
The yen fell to as low as 111.90 in early trade, its lowest level in more than three weeks but Japanese exporters quickly jumped on it to buy the currency, pushing it back to 111.17, up 0.6 per cent from late US levels on Friday.
On Friday, the yen fell 2.1 per cent — its biggest fall since the day Bank of Japan Governor Haruhiko Kuroda unleashed his second easing in October 2014 — after Bloomberg reported that the Bank of Japan is considering applying negative rates to its lending programme for financial institutions.
The big fall was likely driven by selling from speculators who had held a huge amount of yen long positions. Data on Friday showed that currency speculators held a record yen long position in the Chicago futures exchange last week.
But traders are also wary that further BoJ easing may have limited impact in weakening the yen, as did the introduction of negative interest rates in January.
“I'm a bit sceptical about how long the yen's slide will continue. Financial markets appear to have a bleak view on the impact of negative interest rates on the economy,” said Kyosuke Suzuki, director of forex at Societe Generale.
Bank of Japan policy meet
With much of any further easing already priced in, the yen may have limited room to fall further after the BoJ’s policy meeting on April 27-28, some analysts also said.
“The hurdle for the dollar/yen to rise further has been heightened after the report. If the BoJ comes up with what’s already reported and a bit of stock purchases, that would lead to buy-on-rumour-sell-on-fact type of dollar/yen selling,” said Minori Uchida, chief FX analyst at the Bank of Tokyo-Mitsubishi UFJ.
British pound
The British pound scaled a five-week high of $1.4475 in early trade and last stood at $1.4430, up 0.2 per cent from late last week.
The firmness stemmed from hopes that public opinion may tilt in favour of staying in the European Union after US President Barack Obama threw his weight behind the “in” camp.
The pound hit a six-week high against the euro of 77.52 pence per euro.
The common currency was lacklustre against the dollar, touching a four-week low of $1.1216, before recovering to $1.1243, up 0.2 per cent from late US levels on Friday.