The yen tumbled to its weakest level since July 2024, underperforming all major currencies, with analysts pointing to Japanese retail investors' outflows and Tokyo benchmark fixing as key factors behind the decline. The Japanese currency hit a low of 158.42 against the dollar earlier in the session before trimming losses to 157.73, a 0.1% drop as of 3.10 pm Tokyo time.

Finance Minister Katsunobu Kato responded to the yen's slide by warning that authorities would take appropriate action against excessive currency moves. This cautionary stance reflects increasing concerns over speculative pressures.

The weakening yen comes as the Bank of Japan (BOJ) remains cautious on monetary policy shifts. BOJ Governor Kazuo Ueda reiterated that interest rates would only rise if economic conditions improve significantly, leaving markets uncertain about any changes during the January policy meeting. Barclays has postponed its forecast for a BOJ rate hike to March from January, aligning with similar adjustments by Bank of America Corp. and Nomura Holdings Inc.

Market strategists believe the lack of near-term rate hike expectations is driving yen selling. "Yen selling is likely due to the lack of expectations for a rate hike at the BOJ's January meeting," said Takeru Yamamoto, a trader at Sumitomo Mitsui Trust Bank. He added that Japanese authorities are likely to remain wary of the yen approaching the 158 level.

Meanwhile, Akira Moroga, Chief Market Strategist at Aozora Bank Ltd, suggested that yen outflows via the Nippon Individual Savings Account (NISA) and Tokyo benchmark fixing played a significant role in the currency's recent performance. "After the fixing, the dollar-yen has broken through its recent high, so trend-following dollar buying has also come in," he said.

Traders are closely monitoring upcoming US economic data, particularly the jobs report due Friday. A stronger-than-expected result could push the yen closer to 159, potentially heightening concerns about intervention. "If US data is strong, there is a possibility that the dollar-yen will go up to nearly 159, but in that case, the sense of caution about intervention is likely to increase further," added Moroga.

Overnight index swaps currently indicate a 47% probability of a BOJ rate hike in January and a 76% chance by March, underscoring the uncertainty surrounding Japan's monetary policy direction.

Observers expect volatility in the yen to persist as domestic and global factors continue to shape its trajectory.

Bloomberg