Meanwhile, mounting expectations for a December interest rate reduction by the Federal Reserve exerted downward pressure on the dollar.
Ueda said on Monday the BOJ would consider the pros and cons of raising interest rates at its next policy meeting in December, offering the strongest hint so far that a hike may materialise this month.
He subsequently told a press conference that he would elaborate on the central bank’s future rate hike path once rates are raised to 0.75%, adding that December’s policy decision would take into account wage information and other data.
That pushed the dollar down by nearly 1% to ¥154.665, before the US currency pared losses to trade down 0.7% at ¥155.09.
“It does seem like the BOJ is indicating greater comfort with moving towards hikes,” Jayati Bharadwaj, head of FX strategy at TD Securities, said.
“We expect them to actually hike in December, so it does take us closer to our call and that’s actually helping the yen,” Bharadwaj said.
Traders have priced in a growing chance of a December hike from the BOJ, with the yen’s slide to 10-month lows last month adding to the case for raising rates.
The yen rallied against a range of currencies, leaving the euro down 0.4% and the pound down 0.6%.
Dollar downbeat
In the broader market, the dollar traded with a softer tone as investors braced for a pivotal month that could bring the Fed’s final rate cut of the year and the confirmation of a dovish successor to chair Jerome Powell.
Data on Monday showed US manufacturing contracted for the ninth straight month in November, with factories facing slumping orders and higher prices for inputs as the drag from import tariffs persisted.
The euro rose 0.5% to a more than two-week high of US$1.1652, before paring gains to trade up 0.1%.
Sterling was 0.2% lower at US$1.3254 after logging its best week in over three months last week in a relief rally after British finance minister Rachel Reeves’ budget revelations.
Traders are now pricing in an 88% chance the Fed will cut by 25 basis points when it convenes next week, according to the CME FedWatch tool.
What is less clear-cut is what happens after December.
Money markets right now show very little chance of another cut before spring.
Some analysts believe December might even yield a “hawkish cut” – trader-speak for a cut accompanied by indications from policymakers that another near-term fall in borrowing costs may not be forthcoming.
Fed Leadership
The US dollar is struggling as investors treat a December cut as nearly a done deal.
Adding to the pressure was a report that White House economic adviser Kevin Hassett could be the next Fed chair, which contributed to the dollar’s worst weekly performance against a basket of major currencies in four months last week.
“With December FOMC now closer to fully pricing a 25bp cut, we think the market will increasingly focus on the pricing of subsequent meetings,” Goldman Sachs economists said in a note.
“Division on the committee is restraining more dovish pricing, but with a large amount of labor market data due before the January meeting we think too little is priced in Q1,” economists said.
Trading on the foreign exchange market was back to normal on Monday following an hours-long outage at the world’s largest exchange operator CME Group last week, which upended transactions across stocks, bonds, commodities and currencies.
Bitcoin fell below US$90,000 on Monday, as a selloff gathered pace following the steepest monthly decline since mid-2021, as renewed risk aversion drove investors out of stocks and digital assets.
Bitcoin was last down 6% at US$85,464.