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Demand for the yen showed little signs of abating on Monday, with the currency reaching a fresh 17-month high, prompting the Japanese government to warn that it could take steps to weaken the exchange rate.

Chief Cabinet Secretary Yoshihide Suga told a news conference the government was closely monitoring the foreign exchange market with a sense of urgency, noting the yen moves were one-sided and speculative.

The dollar fell as far as 107.63 yen JPY=, surpassing last week's trough of 107.67 and extending last week's 3.3 percent drop. It has since drifted back to 107.91, down 0.2 percent on the day.

Analysts said part of the reason for the yen's eye-catching rally was due to the unwinding of very bearish positions as investors gave up on a hike in U.S. interest rates this year.

The unwelcome gain in the yen has increased the pressure on Japanese authorities to take steps to deal with it.

Japan's top government spokesman said the Group of 20's agreement to avoid competitive currency devaluation does not mean Japan cannot intervene in response to one-sided currency moves.

Yet many traders say verbal intervention would have limited impact given that the yen is hardly strong at current levels

Reference: Reuters