The dollar fell below ¥89.60 in Tokyo trading Monday due to selling for position adjustments before a closely watched monetary policy decision by the Bank of Japan on Tuesday.
At 5 p.m., the dollar stood at ¥89.58-59, down from ¥90.02-02 at the same time Friday. The euro was at $1.3321-3325, down from $1.3392-3397, and at ¥119.35-37, down from ¥120.57-60.
In early Tokyo trading, the dollar was solid above ¥90, carrying over its firm tone from overseas trading late last week on hopes for additional monetary easing by the BOJ.
But the dollar later slipped below ¥90 due to position-adjustment selling before the central bank wraps up its two-day meeting, brokers said.
After rapidly topping ¥90 late last week, the greenback was in for a correction, an official at a major Japanese bank said.
There was a sense that the yen had been oversold before a policy decision by the BOJ, one market source said, suggesting that the yen attracted buybacks by some investors to lock in profits.
The dollar briefly dropped below ¥89.50 due to stop-loss selling, an official at another major Japanese bank said.
The greenback was also pressured as the yen drew safe-haven demand on the back of falling Tokyo stock prices, an official at a foreign exchange broker said.
The market has largely factored in additional easing by the BOJ and the dollar may face selling after the BOJ announces its decision, so some currency players are believed to have sold the dollar beforehand, a foreign exchange analyst at a major financial institution said.
Still, the dollar appears to be maintaining its upward trend after U.S. Republican leaders said last week they plan to tolerate a three-month increase in the U.S. government debt ceiling.
“With concerns over the U.S. fiscal risk expected to recede, yen purchases are likely to prove temporary,” Junichi Ishikawa, analyst at IG Securities Ltd., said.
As for concrete steps by the BOJ, brokers said many market participants expect a rise of ¥10 trillion in the BOJ’s fund mainly for asset purchases. A decision to take unlimited monetary easing would surprise the market, triggering a renewed wave of dollar-buying, a bank official said.