TOKYO: The yen rebounded Monday, with analysts saying last week's dive on a report that the Bank of Japan was considering new stimulus was overdone.
The Japanese unit sank Friday in reaction to a Bloomberg News story that said the central bank may take steps to support major financial institutions hit by its negative-rate policy.
On Monday, the greenback eased to 111.29 yen from 111.80 yen in New York late Friday. It had been around 109.31 yen before the report Friday.
The euro weakened to 125.11 yen from 125.50 yen, while the euro ticked up to $1.1243 from $1.1230.
"The dollar-yen on Friday was an over-reaction to speculation that the BoJ might be willing to lend to commercial banks with negative interest rates," Gareth Berry, a foreign-exchange and rates strategist in Singapore at Macquarie Bank, told Bloomberg News.
"If that's all the BoJ does on Thursday, dollar-yen should fall and not rise."
Speculation has been running high that the BoJ would have to act sooner than later as Japan's deadly earthquakes this month threaten a fragile economy.
The central bank shocked markets in January after it adopted the negative rate policy, effectively charging banks to store excess reserves in its vaults.
The move was aimed at spurring lending and achieving its two percent inflation target as the government struggles to kickstart the world's number-three economy.
But the plan was met with criticism by many economists who derided it as a desperate bid to keep Tokyo's faltering growth plan on track.
Emerging market currencies, which enjoyed healthy gains last week, retreated as dealers look for safer investments.
The South Korean won slipped 0.7 percent, the oil-reliant Malaysian ringgit fell 0.3 percent and Indonesia's rupiah shed 0.2 percent. The Indian rupee shed 0.3 percent and Australian dollar 0.1 percent.
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