The dollar rose about 0.2 per cent against the yen to around 157.20, with trading conditions thinner because Japanese markets were closed for a three-day holiday. The limited liquidity kept attention on whether authorities in Tokyo might act if volatility intensified.
The yen had come under pressure despite the Bank of Japan raising its policy rate on Friday to 1.25 per cent, the highest level in 31 years. Two policymakers dissented from the decision and the central bank stopped short of delivering the stronger guidance some investors had expected on the pace of further tightening.
The currency fell sharply after the decision before recovering part of its losses when Japanese officials were reported to have conducted rate checks with market participants. Such checks are closely watched because they can signal that authorities are assessing market conditions ahead of possible intervention.
Lee Hardman, senior currency analyst at MUFG, said the rate check should help restrain expectations over how far the yen might be allowed to weaken in the near term. Traders nevertheless continued to test the currency as they weighed the Bank of Japan’s policy stance against a comparatively hawkish Federal Reserve.
The dollar index, which measures the US currency against six major peers, was broadly steady at about 100.23 after gaining more than 1 per cent last week. The advance followed the Federal Reserve’s latest rate increase and indications that additional tightening could be needed if inflation pressures remain persistent.
Market pricing showed investors assigning about a 55 per cent probability to another Federal Reserve rate rise at its October meeting, compared with roughly 43 per cent a week earlier. The shift underscored how expectations for US monetary policy continued to support the dollar despite tightening moves elsewhere.
The European Central Bank has also raised rates this month and signalled that further action may be required to contain inflation pressures. Those moves, combined with the Federal Reserve’s stance, have reinforced expectations that borrowing costs in major economies may remain elevated for longer than investors had anticipated.
Against the euro, the dollar was little changed, with the single currency near $1.149. Sterling was also broadly flat at around $1.339, leaving the yen as the main focus in otherwise subdued foreign-exchange trading.
The yen had strengthened to a seven-month high earlier in September as investors positioned for faster Bank of Japan tightening and signs that Japanese investors were repatriating funds. Some of those gains have since unwound as traders reassessed how aggressively the central bank is prepared to raise rates.
US regulatory positioning data showed speculative net-long yen positions had climbed to about $9.7 billion in the week to September 15, the largest such exposure since July 2025. The build-up left the currency vulnerable to a sharper reversal when the Bank of Japan’s message failed to match the most hawkish market expectations.
Fred Neumann, chief Asia economist at HSBC, said the central bank faced a high bar in convincing investors that its policy stance had become decisively hawkish, particularly after the Federal Reserve delivered a unanimous rate increase.
Thomas Mathews, head of markets for Asia-Pacific at Capital Economics, said traders continued to regard the Federal Reserve as more hawkish than the Bank of Japan. He added that the yen might have to weaken further before intervention again became an immediate consideration.
Japan has already shown its willingness to enter currency markets when moves become disorderly. The yen fell to 163.99 per dollar in July, its weakest level in four decades, before coordinated action by Tokyo and Washington helped lift the currency.
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