(Bloomberg) -- The yen weakened more than 1% against the dollar on Tuesday morning, halting a five-day surge that gathered pace when the Bank of Japan hiked interest rates last week.
The currency then clawed back much of the intraday loss amid choppy trading and was down 0.6% at 145.02 as of 9:58 a.m. in Tokyo.
It had strengthened sharply Monday, adding fuel to the slump in Japanese stocks, which wiped out their gains since the start of the year. Japanese equities were rebounding on Tuesday morning, with technical indicators supporting the move.
“Expectations of rising shares are prompting a reversal in yen buying on risk aversion,” said Keiichi Iguchi, a senior strategist at Resona Holdings Inc.
A firming of expectations that the Federal Reserve will cut interest rates as soon as September has given some support to the yen, along with the view that rates will go higher in Japan in coming months.
Global carry trades unwinding has also been boosting the Japanese currency and jolting markets around the world.
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The rebound in the Nikkei 225 Stock Average and Topix gathered pace through the morning on Tuesday, with both gauges rising almost 11%.
“The market may have gone a bit too far looking for an inter-meeting cut from the Federal Reserve,” said Charu Chanana, head of currency strategy at Saxo Markets. “Equities could see some dip buyers come in given strong structural tailwinds in Japan, but the risk of further rate hikes from the BOJ still persists and that could cap the gains.”
(Updates with additional comment and details)
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