LONDON: The yen fell against the dollar and the euro on Monday as stocks bounced, but the Japanese currency stayed near two-month highs with investors seeking clarity on the Federal Reserve's ultra-loose monetary policy.
The focus is on what Chairman Ben Bernanke will say following the US central bank's meeting on Tuesday and Wednesday. Expectations the Fed will start unwinding its asset purchase programme have hit global share markets and sparked a rush to the safety of liquid currencies like the yen.
Investors now increasingly expect Bernanke to reassure that Fed policy will stay accommodative, capping a rise in US bond yields which has prompted many to unwind favourable bets in riskier assets.
Higher-yielding assets have also been the victim of disappointment over Japan's latest policy response to ease volatility in markets there and worries about a slowdown in Chinese growth.
Those factors prompted wild swings on the Tokyo stock market and forced investors to unwind short yen positions in recent weeks.
"It's a bit difficult to call what Bernanke will say but our best-case scenario is he will try to soothe bond market volatility and that should help dollar/yen," said Tom Levinson, FX strategist at ING. "If he is able to do that, dollar/yen should be able to find a base at 93.50 yen."
The dollar rose 1 percent to 95.125 yen, thanks to gains in the Nikkei share average and higher European stocks. Last week, the dollar fell to a two-month low of 93.75 yen, near key support around 93.57, a level representing the 38.2 percent retracement of its September-May rally.
"If Bernanke does not hint at tapering bond buying too aggressively, volatility in financial markets will come down and the dollar/yen will likely rebound," said Minori Uchida, chief FX analyst at the Bank of Tokyo-Mitsubishi UFJ.
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