The yen zoomed in early trade on Thursday in anticipation of a possible sales tax hike in Japan and the upcoming decision by Federal Reserve chief Janet Yellen about an interest rate hike in the U.S.
A sudden spike in the yen brought the dollar down as low as 109.54 from a session high of 110.235. It was last at 109.72, after rallying somewhat and moving toward its three-week high of 110.590 yen marked on Friday.
The uncertainty of a Japanese tax increase has made investors anxious. Japanese Finance Minister Taro Aso told his G7 counterparts at a finance leaders' meeting last week that Japan will raise the tax as planned. But he did not say whether that meant Japan has officially pledged to the international community that it will go ahead with the increase.
According to one trader at a foreign bank in Tokyo, "The sudden move shows how jumpy everyone is." The yen has been volatile of late, particularly around the timing of Japan's sales tax increase.
Fed Chair Yellen is scheduled to speak on Friday, and could strengthen prospects of the central bank raising interest rates as early as next month, or July. Minutes released Sunday from the Fed's April policy meeting and comments by several policymakers hinted strongly that a hike could be forthcoming.
Oil Passes $50 on Low Inventories
Oil prices gained as much as 2 percent in the U.S. session, after government data showed a larger-than-expected drop in crude inventories. Global benchmark Brent futures traded up 0.64 percent at $50.06, a barrel, the highest in six months, while U.S. crude futures were higher by 0.48 percent at $49.80.