The Japanese currency fell 0.40 percent to 157.00 to the dollar, but it moved away from its lowest level in 34 years at 160.245, which it recorded yesterday, Monday, when traders said that Tokyo intervened in buying the yen, which led to a striking recovery.
The Japanese authorities did not confirm that they intervened in the currency market to support the yen, but the markets are still on high alert for intervention ahead of the US Federal Reserve’s monetary policy decision this week.
Official statements that would reveal whether the intervention actually occurred will not be released until late May.
The yen is still at a lower level than it was before the Bank of Japan's monetary policy decision was announced last week. The yen also suffered its biggest monthly decline since January.
While the timing of any possible increase in Japanese interest rates remains ambiguous, traders continue to reduce their bets on the Federal Reserve reducing interest rates this year amid stronger-than-expected US economic data and continued inflation.
According to CME's Fed Watch tool, markets expect a 44 percent cut in US interest rates in September.
The dollar index rose 0.16 percent to 105.69 points against a basket of six major currencies ahead of the Federal Reserve meeting, after falling 0.25 percent in the last session.
Other major central banks such as the European Central Bank and the Bank of England may start cutting interest rates in the near future, even if the policy path is more uncertain after recent developments.
Markets are awaiting inflation data in the euro zone scheduled to be released later today, searching for further signals about the timing of interest rate cuts from the European Central Bank. Data released from Germany and Spain yesterday, Monday, were almost in line with expectations.
The euro fell 0.17 percent to $1.0719. In the latest transactions, the British pound recorded $1.2531, down 0.25 percent during the day.
Weak retail sales data in Australia led to the Australian dollar falling 0.60 percent at $0.653, as markets further reduced expectations for another interest rate hike by September.
In China, manufacturing and services activity expanded at a slower pace in April.
The yuan in external transactions fell 0.14 percent to 7.2523 per dollar. Despite continued support from the central bank, the yuan has fallen 2 percent against the dollar so far this year and is on track to post losses for a fourth straight month.
In terms of cryptocurrencies, Bitcoin rose in the latest trading by 0.70 percent to $63,357.00.
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