The yen is in a "tug of war" as a result of speculation the Federal Reserve will begin tapering stimulus this year, according to Takatoshi Kato, a former top currency official at the Finance Ministry.
"One of the main objectives of the Fed's quantitative easing was to boost asset prices and encourage spending by providing ample liquidity, but we're beginning to see some of the side effects," Kato, 72, now president of the Japan Center for International Finance, said in a Tuesday interview in Tokyo.
Investors are pulling money from emerging markets as they seek to avoid risk, and they're turning to the yen as a safe haven, he said. At the same time, the possibility of a reduction in the pace of the Fed's bond buying is pushing up Treasury yields, and raising the appeal of the dollar.