The Japanese yen continued to see some volatility on Monday, following Friday’s uncertain trading. Traders could remain cautious after the yen’s strong rebound since the middle of July as the currency reacted to speculation of interest rate hikes and suspected market interventions from the Bank of Japan. The yen also benefited from expectations of softer monetary policy in the US, which could shrink the interest rate gap between the two countries. This has led to pressure on carry trade positions and liquidations in this regard. Traders are now awaiting policy decisions from the Bank of Japan (BoJ) and the Federal Reserve on Wednesday to gauge the market’s potential direction while the potential BoJ interest rate increase and a reduction in its monthly bond purchases may help the yen to get further strength. The possibility of a BoJ rate hike could lead to higher Japanese bond yields however they could see some volatility in case of a surprise. These actions would represent a significant shift in Japan’s monetary policy, affecting bond yields. Yields slid today and could remain under pressure before the BoJ meeting although they remain near their highs. In addition, risks of escalating geopolitical tensions in the Middle East and elsewhere could boost flows toward safe-haven assets, benefiting the yen.