The Japanese yen rose to a five-month high on Tuesday on the back of broad-based selling of the dollar and speculation the Bank of Japan could be close to dialing back record levels of monetary stimulus.
The yen has gained 1.5 percent against the dollar this month, benefiting last week from a rush by investors into currencies deemed safer amid the rout in equity markets. But while risk appetite has recovered this week, investors have continued to sell dollars and buy yen.
The dollar was down 0.57 percent against a basket of six currencies, reversing some of its gains last week, when it enjoyed its best performance since 2016.
"A lot of people in the market are expecting the yen to rise, because a turnaround in BOJ monetary policy has not been priced in," Ulrich Leuchtmann, a Frankfurt-based analyst at Commerzbank said.
This helps explain the move, even though there is not consensus that the BOJ will follow other central banks in gradually ending the era of easy money soon.
"I dont buy it," said John Doyle, vice president of dealing and trading at Tempus in Washington.
"Last Friday we saw that Governor Kuroda will be reappointed for five more years, and that's a signal to us that business will continue on as usual," Doyle continued.