The Japanese yen rose in Asian trading on Monday at the start of the week against a basket of major and minor currencies, attempting to recover from a 20-month low against the US dollar, supported by buying activity from lower levels and under the watch of Japanese authorities, who confirmed their readiness to take the necessary measures to protect the local currency in the foreign exchange market.

The US currency retreated from its highest levels in ten months as investors assess developments in the Iran war, ahead of a busy week of global central bank meetings.

The Bank of Japan meets later this week and is expected to keep interest rates largely unchanged, while providing further clues about the path of Japanese monetary policy normalization this year.

Price Overview

Japanese yen exchange rate today: the dollar fell 0.3% against the yen to 159.25, from Fridays closing level of 159.70, after reaching a session high of 159.74.

The yen ended Fridays trading down about 0.25% against the dollar, marking its fourth consecutive daily loss and recording a 20-month low of 159.75 due to the repercussions of the Iran war.

The yen lost 1.25% against the dollar last week, marking its fourth consecutive weekly loss as investors focused on buying the US currency as a preferred safe-haven asset.

Japanese authorities

Japanese Finance Minister Satsuki Katayama said on Friday that Japan is ready to take the necessary measures to address yen movements that affect the lives of citizens. Katayama added that she is in close contact with US authorities regarding foreign exchange issues.

Opinions and analysis

Karl Schamotta, chief market strategist at Corpay in Toronto, said policymakers are likely to view the impact of a weaker exchange rate on already rising import bills with suspicion.

Schamotta added that pressure on Japanese authorities to intervene to support the weakened yen could increase in the coming days and weeks.

Naomi Fink, chief global strategist at Amova Asset Management, said that for Japan the main risk is not only rising oil prices but also deteriorating trade conditions due to imported energy costs and logistics, in addition to the weak yen and limited monetary policy flexibility.

Fink added that markets, especially the foreign exchange market, may be underestimating the likelihood that these pressures could force the Bank of Japan to make more difficult policy choices.

US dollar

The dollar index fell 0.3% on Monday, retreating from a ten-month high of 100.54 points and heading toward its first loss in the past five sessions due to corrective activity and profit-taking.

Beyond profit-taking sales, the US currency weakened at the start of the week against a basket of global currencies as investors continue assessing developments in the Iran war, in addition to awaiting a busy week of monetary policy meetings by major central banks.

At least eight central banks, including the US Federal Reserve, the European Central Bank, the Bank of England, and the Bank of Japan, will meet this week to determine interest rates in their first policy meetings since the start of the conflict in the Middle East.

Carol Kong, currency strategist at the Commonwealth Bank of Australia, said the war poses downside risks to economic growth and upside risks to inflation, meaning central bank responses will largely depend on the current context, specifically whether inflation is above, within, or below target.

Japanese interest rates

Markets price the probability of the Bank of Japan raising interest rates by a quarter percentage point at this weeks meeting at 5%, while the probability of a quarter-point hike at the April meeting stands at 35%.

In the latest Reuters poll, the Bank of Japan may raise interest rates to 1% in September.

Analysts at Morgan Stanley and MUFG wrote in a joint research report that they previously viewed the probability of a Japanese interest rate hike in March or April as low, but with rising uncertainty stemming from developments in the Middle East, the Bank of Japan is likely to adopt a more cautious stance, reducing the likelihood of a rate hike in the near term.

The Bank of Japan will meet on Wednesday and Thursday of this week to review economic developments in the country and determine the appropriate monetary tools for this delicate phase facing the worlds fourth-largest economy.