Yen Rallies from a 2 1/2-Year Low

The yen rallied from a 2 1/2 year low against the dollar on Monday. The yen’s relative strength index versus the dollar slid to 15.5 on Jan. 4, the least since December 2001 and below the 30 level that traders view as a signal that an asset’s price has fallen too fast. The Dollar Index (DXY) gained for a fourth day. Minutes released last week of the U.S. central bank’s latest meeting showed policy makers may curtail monetary stimulus this year.

According to one analyst, Japan’s currency gained 0.3 percent to 87.86 per dollar as of 2:55 p.m. in Tokyo from Jan. 4, when it touched 88.41, the weakest since July 2010. The yen gained 0.6 percent to 114.53 per euro, after posting a 1.4 percent decline last week. The dollar added 0.3 percent to $1.3033 per euro.

The yen weakened last week amid speculation that Japan will ramp up efforts to spur growth. The government will announce around 12 trillion yen ($136 billion) in fiscal stimulus this month to boost the nation’s shrinking economy, the Yomiuri newspaper said today. The extra budget for this fiscal year through March will include 5-6 trillion yen of public works spending, the report said, without saying where it obtained its information.

In addition to hopes for the new Japanese government's economic policies, the yen is likely to stay under pressure due to Japan's trade deficits and yen-selling related to Japanese firms' acquisitions of overseas businesses.