The yen rose against the US dollar on Monday, with traders feeling yen-buying intervention by Japanese authorities as the impetus for the yen's strengthening to levels last seen more than three decades ago.
The US dollar fell to a low of 154.40 yen from a previous high of 160.245 on the day. Bank sources say Japanese banks are seen selling US dollars for yen. The US currency last traded at 156.22 yen.
The Wall Street Journal on Monday through close sources said the Japanese financial authorities have intervened in the market.
Traders have been on alert for weeks for any sign of action from Tokyo to prop up the currency, which has lost 11% against the US dollar so far this year. The yen is trading at a 34-year low despite its central bank ending historically negative interest rates last month.
Currency traders had expected that despite the change, Japanese interest rates would remain low compared to relatively high US interest rates.
As a result, Japanese government bonds offer significantly lower yields than US and other countries' bonds. This indirectly attracts a steady flow of Japanese money abroad and depresses the yen.
Japan's Finance Ministry was unavailable for comment with markets in the country closed for a holiday on Monday.
A weak yen is a boon for Japanese exporters, but a problem for policymakers as it raises import costs, adds to inflationary pressures and depresses household spending.
The BOJ is not mandated to manage the currency, but a weak yen complicates its objective of achieving sustainable inflation. It also cannot raise rates quickly, for fear of upsetting the instability of Japan's highly indebted government and economy.
The suspected intervention comes days before a policy review by the Federal Reserve on May 1.
