The yen rebounded against major currencies on Monday as continued jitters permeating riskier asset markets led investors to trim over-extended positions and partially unwind so-called carry trades.
Amid renewed concerns about the riskier sectors of the US housing sector and potential for spillover into credit and broader financial markets, investors sought safer options. That involved selling equities and higher-yielding currencies that have given decent returns this year, and buying government bonds and low-yielding currencies that have funded carry trades.
Comments from the Bank for International Settlements in its annual report on Sunday that there was "clearly something anomalous" in the low-yielding yen's recent decline - last week it sank to multi-year lows against a range of currencies, including a record low against the euro - helped its recovery. The dollar, meanwhile, was mixed within tight ranges against its major counterparts as traders awaited US housing market data, inflation figures and the Federal Reserve's interest rate decision and statement later in the week.
"You're seeing continued concerns on what is happening in credit markets, and equity markets aren't doing particularly well either but you're not seeing a great unwind in G10 FX," said Phylis Papadavid, currency strategist at Lehman Brothers.
At 1200 GMT the dollar was down 0.4 percent on the day at 123.36 yen, coming back off Friday's peak of 124.16 yen - the highest since December 2002. The euro was off 0.5 percent to 166.05 yen, having reached an all-time high of 166.94 yen the previous session. The yen was also up around 0.2 percent on the day against sterling, the Swiss franc and the Australian and New Zealand dollars.
The euro was flat against the dollar at $1.3462, while sterling was also steady at $1.9990, having popped above the psychological $2 barrier for the first time in almost two months. The high-yielding New Zealand dollar recovered all the losses it incurred on suspected central bank intervention late on Friday, striking a 22-year high against the dollar.