The yen has resumed its slide against the US dollar in recent days, wiping out the effect of the Bank of Japan's interest rate increase and a rare "rate check" by the central bank, Yomiuri Shimbun reported on September 24.

The renewed weakness leaves Japanese authorities with few options short of direct market intervention, after a quarter-point rate rise on September 18 pushed the policy rate to around 1.25% but failed to narrow expectations of a persistent gap with US rates.

The Japanese currency traded at about JPY157.80 to the dollar in London on the morning of September 23, more than a yen weaker than on the morning of September 18. In New York later the same day it slipped further, to around JPY158.

The currency swung sharply over six days spanning Japan's extended public holiday. When the BOJ confirmed the 0.25 percentage point increase at midday on September 18, the yen fell almost two yen in Tokyo afternoon trade, from the mid-JPY156 range to the JPY158 level. Rate rises normally support a currency by lifting deposit and investment yields, but the move had already been priced in, and the disclosure that two of the nine policy board members voted against it left traders doubting further tightening.

At about 11pm Japan time on September 18, the yen abruptly reversed course in European and US trading, gaining roughly one yen from the upper JPY157 range to the upper JPY156 range within an hour. The BOJ had telephoned foreign exchange desks at major banks to check rates, according to people familiar with the matter. A rate check falls short of intervention but carries more weight than verbal warnings from officials. Trading volumes thin out during Japanese holidays, which may have made the timing more effective.

The US Federal Reserve raised rates by 0.25 percentage points on September 16 in a unanimous decision, taking its target range to 3.75%-4.00%, and projected one more increase this year.

Franciszek Taborsky of Dutch bank ING said the dovish surprise from the BOJ exposed the divergence with the Fed. If sustained high oil prices prompt a US rate rise as early as October, the yen could return to JPY160 to the dollar, he said.