Some cautious gains for European stock markets hauled the yen down off a 17-month high against the dollar on Monday after Japanese officials warned again that they could intervene against the currency's "one-sided" rally. Chief Cabinet Secretary Yoshihide Suga said the Group of 20's agreement to avoid competitive devaluations did not mean Japan cannot intervene against currency moves, repeating language which has flagged intervention in the past.
With global stock markets in a generally shaky mood, demand for the traditional security of the yen among investors has remained strong. After gains in China in Asian time, Europe's main stock markets were all a touch higher on Monday, having racked up a fourth successive week of losses. "The catalyst this week is going to be what happens in credit and equity markets," said Michael Sneyd, a strategist with BNP Paribas in London.
He said that an index of risk appetite run by the French bank pointed to the potential for falls in US markets, which helped by better domestic economic growth have remained on a stronger track than those in Europe. "The S&P index (of US stocks) has held up reasonably well. It's still within a range but it lost 1.5 percent last week and it does seem like the upward momentum has stalled," he said.
Sterling, a victim of concerns over the Brexit referendum in the past few months, was the biggest gainer, up almost 1 percent against both the dollar and the euro, with traders citing the improved tone on stock markets. Commodity Futures Trading Commission data on Friday showed speculators had added to bets against the pound in the week to April 5, which conversely leaves less room for more players to jump on the trade. "Even if Brexit fears are keeping selling interest intact, oversold levels are likely to keep downside potential limited for now," Credit Agricole analysts said in a morning note based on their own positioning analysis.
"It must be noted that our client base was less pessimistic on the currency compared to IMM data." The yen, which has gained for three weeks straight against the dollar, was steady at 108.09 yen per dollar, having hit a high of 107.63 in Asian trading. Suga told a news conference the Japanese government was closely monitoring the currency market with a sense of urgency, calling the yen moves one-sided and speculative. But the running logic among analysts is that Tokyo cannot easily intervene ahead of G20 meetings in Washington this week and a round of G7 summits it is hosting in May.
"The Bank of Japan for the moment is still rather hesitant," said Lutz Karpowitz, a strategist with Commerzbank in Frankfurt. "At some point they have to act or they have to state that they will postpone their inflation target once again. But the recovery in dollar-yen this morning is hardly significant." A number of US Federal Reserve policymakers speak this week, but analysts held out little hope for that significantly reviving expectations for rises in interest rates this year. Fed chair Janet Yellen's caution on policy has cooled any thoughts of a rise before mid-year even while a number of her colleagues have sounded more bullish. The dollar index of its strength against a basket of other major currencies was down marginally at 94.178. It was 0.1 higher against the euro at $1.1392.