The yen traded below the key 140 level against the U.S. dollar in Asian trading on Wednesday local time after Japanese financial authorities said they would respond to volatility in the forex market "appropriately" during an emergency meeting on Tuesday.
Against the dollar, the yen was stable at around 139.82 after previously hitting a six-month low of 140.91 per dollar on Friday. The currency breached the level — for the first time in over two decades — in September last year.
Japanese vice finance minister for international affairs Masato Kanda said excessive volatility in the currency market is "undesirable." According to Kanda, authorities will "closely" monitor the forex market trend and not "rule out any options available."
Kanda also pointed out several risk factors in financial markets, including the U.S. debt ceiling crisis and the soundness of the American financial sector. The official said Japan should monitor how the market trends would influence its economy.
MUFG head of research global markets EMEA Derek Halpenny said there were rising concerns in Japan about financial market trends, partially because the U.S. Federal Reserve is expected to hike its benchmark rate by 25 basis points in June. Halpenny predicted that the dollar/yen rate could hit mid 140s.
State Street general manager Bart Wakabayashi said Japanese financial regulators would take action if the dollar-yen exchange rate exceeded the 145 level.
Analysts explain that a strong yen usually raises concerns for Japanese policymakers because it reduces the competitiveness of the country's export-dependent economy. However, the weakening yen has been a greater concern for the government recently because it increases import costs and lowers Japan's purchasing power.
Last year, the Japanese yen hit a 32-year low of around 152 per dollar, prompting the authorities to conduct dollar sales to intervene in the currency market.
Updates on U.S. dollar
Versus the U.S. dollar, the Australian dollar lost 0.15 percent to trade at $0.6507, inching toward a six-and-a-half-week low of $0.6490 breached last week. The Aussie previously rallied after inflation data in the country increased expectations of further monetary tightening by the country's central bank.
However, new signs of an economic slowdown in China, Australia's top trading partner, caused a decline in the currency value. China's purchasing managers' index fell below 50 in April.
The U.S. dollar gained 0.38 percent to trade at 7.1171 against the Chinese yuan in offshore trading for the first time in six months. It also strengthened over the New Zealand dollar, which lost 0.5 percent to trade at $0.60125.
The euro slid 0.22 percent to $1.0711, returning some gains from Tuesday. The eurozone currency last week hit a two-month low of $1.0673. Sterling eased 0.14 percent to trade at $1.2395 after posting a 0.44 percent increase the previous day.
The greenback broke its gaining streak in the previous trading session after hitting a two-month high of 104.42 last week. Analysts said the optimism around the debt ceiling crisis in the U.S. had improved the market's risk appetite, prompting investors to buy more risk assets.
"A lot of that has to do with how oil has kind of fallen apart today."
Erik Bregar, Silver Gold Bull director of FX & Precious Metals risk management
Silver Gold Bull director of FX & precious metals risk management Erik Bregar said the recent decline in oil prices also contributed to the dollar's previous rally. Oil prices declined by more than four percent on Tuesday ahead of the OPEC+ meeting this weekend. According to Bregar, investors are trying to predict whether oil demand will increase in the coming future, leading them to place their funds in the "safe haven" dollar.
The market is currently anticipating nonfarm payroll data in the U.S. due on Friday to obtain insights into the country's labor market.