Yen pares back gains following an earlier surge

The yen remained weaker against the dollar, with the USD/JPY pair last up 0.1% to $157.21, after earlier jumping to a session high at $155.69

The yen continued to be the big story in foreign exchange markets on Monday, paring back gains against the dollar following an earlier surge fuelled by ongoing speculation that Tokyo may intervene to support the sputtering currency.

The dollar, meanwhile, strengthened amid a boost to safe haven demand as tensions resurfaced in the Middle East amid attacks on ships in Strait of Hormuz and a hit to a critical energy hub in the United Arab Emirates (UAE).

The yen remained weaker against the dollar, with the USD/JPY pair last up 0.1% to $157.21, after earlier jumping to a session high at $155.69. Much of those gains came during a brief stretch. Market holidays in Japan and Mainland China kept overall trading volumes muted.

Last week, the yen spiked versus the dollar by nearly 1.5%, its biggest weekly rise since February.

Market participants now widely believe that officials in Tokyo intervened in currency markets last Thursday, with the aim of keeping the dollar-yen pair under 160 this year.

With Japan entering its Golden Week holidays through next Wednesday, liquidity is likely to be thin and price action more prone to one-way moves, so the authorities may have aimed to correct the level ahead of that period, analysts at Barclays said.

Intervention can cap further yen weakness more than it can generate a lasting rally, because the macro backdrop still works against the yen, analysts at BCA Research said in a note.

Oil prices are high, the Fed is not cutting interest rates, Japanese real rates remain far below peers, and low implied volatility continues to support carry trades where JPY is used as the funding currency, they added.