The yen fell to a two-week low against the dollar on Thursday, pressured by speculation that the Bank of Japan could expand its monetary stimulus as soon as next month.
The Japanese currency has surged more than 9 percent against the dollar in 2016 despite a series of monetary easing measures in Japan, which is in a deflationary spiral. That has fuelled a slew of intervention talk from Japanese officials, resulting in a 1.7 percent drop in the value of the yen so far this week.
Talk of more action increased after prominent Japanese academic Takatoshi Ito said on Thursday that Japan's central bank may expand monetary stimulus either in June or July. Ito has close ties to BOJ Governor Haruhiko Kuroda.
For his part, Kuroda said the BOJ won't hesitate to take further easing steps if necessary, adding that there were still large downside risks to Japan's economy. The BOJ introduced negative interest rates earlier this year, but that has had little impact on the yen or economic data.
"This has become a game of statements now," said Juan Perez, currency strategist at Tempus Consulting in Washington. "I foresee a major reversal on the yen."
Perez added that Japan's negative rates should effectively increase the currency in circulation, which would make the yen cheaper.
"I also believe the BOJ will act aggressively next month and will probably beg (Prime Minister) Shinzo Abe to start spending to jump-start the economy. In the second half of the year, we could see dollar/yen go back to between 120-125 yen."
The dollar rose 0.7 percent to 109.13 in afternoon trading, after earlier hitting a two-week peak of 109.39 yen and recovering from a 18-month low of 105.55 yen on May 3. That low was struck after the BOJ held off from expanding its monetary stimulus at its policy meeting in late April.
Sterling, meanwhile, rose to a six-day high against the dollar after Bank of England policymakers voted unanimously to keep rates on hold, pouring cold water on talk that one or two committee members might vote in favour of a cut.
In a quarterly inflation report published at the same time, the Bank of England stepped up warnings about the risks if Britain votes to leave the European Union in a referendum next month, saying sterling could fall sharply and unemployment could rise.
The pound rose to $1.4498, above its two-week low of $1.4375 touched on Monday. It last traded at $1.445, up 0.1 percent.