Yen rebounds as focus turns to Bank of Japan meeting

Tokyo - The yen rebounded on Monday, with analysts saying last week's dive on a report that the Bank of Japan was considering new stimulus was overdone.

The Japanese unit sank Friday in reaction to a Bloomberg A News story that said the central bank may take steps to support major financial institutions hit by its negative-rate policy.

On Monday, the greenback eased to ¥111.29 from ¥111.80 in New York late on Friday. It had been around ¥109.31 before the report on Friday.

The euro weakened to ¥125.11 from ¥125.50, while the euro ticked up to $1.1243 from $1.1230.

"The dollar-yen on Friday was an over-reaction to speculation that the BoJ might be willing to lend to commercial banks with negative interest rates," Gareth Berry, a foreign-exchange and rates strategist in Singapore at Macquarie Bank, told Bloomberg News.

"If that's all the BoJ does on Thursday, dollar-yen should fall and not rise."

Speculation has been running high that the BoJ would have to act sooner than later as Japan's deadly earthquakes this month threaten a fragile economy.

The central bank shocked markets in January after it adopted the negative rate policy, effectively charging banks to store excess reserves in its vaults.

The move was aimed at spurring lending and achieving its two percent inflation target as the government struggles to kick start the world's number-three economy.

But the plan was met with criticism by many economists who derided it as a desperate bid to keep Tokyo's faltering growth plan on track.

Emerging market currencies, which enjoyed healthy gains last week, retreated as dealers look for safer investments.

The South Korean won slipped 0.7%, the oil-reliant Malaysian ringgit fell 0.3% and Indonesia's rupiah shed 0.2%. The Indian rupee shed 0.3% and Australian dollar 0.1%.