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Yen Rebounds After Minister Warns of Excessive Weakness

Laara Cerman/Leigh Righton | Photolibrary | Getty Images

The yen rebounded from a 2-1/2-year low on Tuesday after Japanese Economics Minister Akira Amari's remarks that excessive yen weakness could have a negative impact on the country sparked profit-taking in heavy bets against the Japanese currency.

The dollar dropped about 0.6 percent to 89.95 yen on the day, having
fallen as low as 88.62 point at one point after Amari said excessive yen
weakness could hurt the livelihood of people by boosting import prices.

On Monday, the dollar rose as high as 89.67 yen, its highest level since June 2010, as many traders had sold the yen aggressively in recent weeks on expectations the Bank of Japan will be forced to take bold action to jump-start a sluggish economy.

(Read More: Bank of Japan to Consider Easing Again in January)

The BOJ is under unrelenting pressure from newly elected Prime Minister Shinzo Abe to beat deflation once and for all.

Keen to tackle the deflation that has dogged Japan's economy for years, Abe wants the cautious Bank of Japan to adopt a 2 percent inflation target – something the central bank is expected to consider when it meets later this month.

Inflation in Japan fell 0.2 percent in November from a year earlier, after a 0.4 percent decline in October. A weak currency, brought about by aggressive monetary easing would help boost inflation, analysts say.

(Read More: Japan Logs First Current Account Deficit in 10 Months)