As the yen plunges, expectations that the BOJ will implement another rate hike are mixing with market concerns about intervention. With liquidity low, market participants are increasingly looking for the authorities' next move.
The yen fell about 2% last week and declined to ¥156.64 per dollar on Monday. Japan's financial markets were closed for a three-day weekend, leaving liquidity low and drawing market participants' attention to the possibility of official intervention.
The BOJ raised its policy rate to 1.25% on Friday, the highest level in 31 years, but the move fell short of market expectations that it would decide to raise rates decisively and failed to halt the yen's decline. Against this backdrop, market activity focused on gathering information, a preliminary step to foreign-exchange intervention, has intensified.
The euro was largely flat with no major moves, while the dollar remained near its highs. Following the Fed's unanimous decision to raise rates, the focus is on how forcefully the BOJ will move to raise rates going forward.
Market participants put the probability of another rate hike at the Fed's next meeting at around 55%, and the yen's outlook could be significantly affected by the BOJ's response going forward.