The yen eased on Monday but was near recent highs, as the Bank of Japan (BOJ) began a two-day meeting seen as crucial in determining when to end the central bank's high policy on interest rates.
The US dollar, on the other hand, continued its decline last week following the Federal Reserve's signal about possible interest rate cuts next year. There was no significant reaction on Monday in the currency market despite the conflict in Iran.
The yen lost ground allowing the US dollar to strengthen 0.56% to 142.94 yen. The Japanese currency has been in turmoil for the past few weeks, as markets struggled to gauge how quickly the BOJ could end its negative interest rate policy, with comments from Governor Kazuo Ueda this month sparking a big rally in the yen. There have been updates that this will not be implemented as soon as December, and investors are now awaiting the BOJ's decision on Tuesday for further clarity on the bank's rate outlook.
However, since hitting a multi-decade low of nearly 152 against the US dollar in November, the yen has strengthened around 6% in value as traders grow more confident that the BOJ's low rate policy against the currency will not be implemented anytime soon.
Against the euro, the yen eased 0.5% to 155.74, but was still trading near this month's four-month high of 153.215 per euro. Shows a high level of anticipation around the BOJ meeting.
On the other hand, the Australian and New Zealand currencies, which often act as a barometer for investors' risk appetite in the currency market, traded near five-month highs. The Aussie currency was 0.4% higher at $0.6729, after touching its highest level since late July earlier in the day, while the New Zealand currency strengthened 0.4% to $0.6233.
The prospect of the Fed cutting interest rates early next year has become a frequently talked about narrative in the market. Future expectations show about a 75% chance that the first tapering could come as early as March, based on the CME FedWatch tool.
The US Dollar is currently facing losses against six major currencies, as the high interest from the US rate hike by the Fed and the message of "keeping interest rates high for longer" has now faded. The US dollar index ended down 0.07% to trade at 102.107, after losing 1.3% last week. The European Central Bank (ECB) and the Bank of England (BoE) also kept interest rates on hold at policy meetings last week, but unlike the Fed, both central banks played down hopes of a sharp rate cut.
