TOKYO -- Another run-up for the currency, another lurch downward for stocks. Japan has suffered a repeat of this familiar pattern at the midpoint of its Golden Week holidays, and many analysts suspect that its currency is not done climbing.
The yen rose to around 106.14 to the dollar one point during trading here Monday morning, surpassing its high in overseas markets late last week, which was triggered by speculators covering yen-short positions. They had sold the yen, anticipating more monetary stimulus from the Bank of Japan last Thursday, but the central bank held its fire.
Currency traders unsure of next leg
Market watchers are now looking ahead to U.S. Federal Reserve policymakers' meeting in June to figure out where the Japanese currency is headed next. A decision not to raise interest rates could invite further gains in the yen.
"If the near-term psychologically important level of 105 yen is broken, we're going to 100 yen," said Kengo Suzuki of Mizuho Securities.
In the meantime, the exchange rate has moved by 5.6 yen in the Japanese currency's favor since the latter half of last week. This rise has been so sharp that it has the market on alert for the possibility of an intervention by Tokyo to bring the yen down.
At the same time, however, some warn that hedge funds and other speculative investors may drive another jerk upward amid thin trading ahead here during the remainder of Golden Week.
Measured concern among stock investors
Equities investors are attuned to this risk, given Japanese blue chips' high exposure to exchange rate headwinds. The Nikkei Stock Average lost more than 500 points Monday to close at 16,147.
But many analysts' forecasts for the index have a lower bound of 15,000 or so, close to the year-to-date low of 14,952 reached Feb. 12. The external environment -- in terms of U.S. and Chinese economic activity, for example -- has improved since then, argued Juichi Wako of Nomura Securities, echoing a commonly held view.
And leaders of the Group of Seven advanced economies may announce coordinated fiscal moves to bolster growth at a summit in Japan later in the month, said Masahiro Ichikawa of Sumitomo Mitsui Asset Management.