The yen strengthened broadly on Monday following a Reuters report that the Bank of Japan was debating moves to scale back its massive monetary stimulus, spurring bids for the Japanese currency. The yen's gains were modest, with the 10-year Japanese government bond yields hitting a six-month high, as traders wanted to see concrete measures from the BOJ.
"The market may be too complacent that the BOJ would be in this easy policy mode forever," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "We have to wait and see what happens." The BOJ, facing stubbornly low inflation, is in unusually active discussions, with changes to its interest-rate targets and stock-buying program on the table, people familiar with the central bank's thinking told Reuters.
The BOJ's current policy, adopted in mid-2016, consists mainly of negative short-term interest rates, keeping the 10-year yield around zero percent and buying about 6 trillion yen worth of stocks through exchange traded funds.
Expectations the central bank may unveil some measures at its next monetary policy meeting on July 30 and 31 sent bond yields jumping to 0.093 percent and the yen rallying to a two-week high against the dollar and the euro.
Some analysts raised doubts whether the Japanese policymakers would agree to move away from an easy policy stance as domestic inflation remains below their 2 percent target and in the wake of last week's comments from U.S. President Donald Trump, who criticized the U.S. dollar's strength.
The yen reached a two-week peak at 110.74 yen per dollar before easing to 111.27 yen, which was up 0.1 percent from Friday, Reuters data showed. It strengthened to a two-week high at 129.85 yen per euro before retreating to 130.33 yen, up 0.25 percent on the day.
CNBC reported on Friday that Trump was worried the Federal Reserve will raise interest rates twice more this year. Trump said the Fed's policy tightening and the strong dollar could hurt the U.S. economy. Also underpinning support for the yen were Trump's comments in a late-night Twitter message warning Iran from making more threats against the United States.
The Japanese currency is seen as a safe-haven due to political worries. With short bets against the yen doubling to nearly 60,000 contracts in the latest weekly data, according to the Commodity Futures Trading Commission, some traders expected more upside for the yen in the short term. Positioning data suggested some signs of peaking in bullish dollar bets after a recent buildup.