(Recasts paragraph 1 to reflect dollar's drop against yen due to options expiry, adds comment in paragraphs 5-7, updates prices at 10:55 a.m. ET (1555 GMT))
The dollar climbed to its highest level in more than a year against the Japanese yen, near the key psychological level of 152, on Monday, but then fell sharply amid a flurry of trading in $3.45 billion of options that come due this week.
There were about $1.25 billion in options contracts set to expire at 10 a.m. ET (1500 GMT) with a 152 strike price, analysts said. Another $2.2 billion was set to expire on Wednesday, they said.
The dollar shot to 151.92 yen JPY=EBS at 9:42 a.m. (1442 GMT), its highest level since October 2022, and then tumbled to 151.20 minutes after the strike price. It was last up 0.14% at 151.74.
Earlier, Japanese Finance Minister Shunichi Suzuki said the government would keep monitoring the currency market and respond appropriately. The yen is down almost 14% against the dollar this year.
The yen's sharp rebound against the dollar was not due to Bank of Japan intervention, said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
"It's not the BOJ. The dollar/yen came off after almost reaching last year's high at 10 a.m." he said. "The important thing at 10 a.m. is the options expiry. The same thing happened in early October."
Expectations for a soft reading of the consumer price index (CPI) and other U.S. data over the next three days could take pressure off the weakening Japanese currency, Chandler said.
The U.S. is likely to report softer CPI for the first time in four months on Tuesday, get the first decline in retail sales since January on Wednesday and on Thursday, partly due the United Auto Workers auto strike, see some weakness in industrial production, he said.
Japanese wholesale inflation slowed below 1% for the first time in just over 2-1/2-years in October, data showed on Monday, suggesting cost pressures that had been driving up prices were starting to fade and reducing support for the yen.
Federal Reserve policymakers, including Chair Jerome Powell, last week said the battle against inflation is not over yet, prompting a scaling back of market interest rate cut bets that pushed up short-dated Treasury yields and supported the dollar.
The dollar index, measuring the greenback's value against other major currencies, was little changed at 150.75 =USD .
The market showed little reaction to news late on Friday that Moody's cut the outlook for U.S. credit to negative from stable.
Markets have been alert to potential intervention from Tokyo to shore up the battered yen.
"At this point it's still about the pace of moves so if we move at the current pace it is manageable for Japan," said BNY Mellon senior macro strategist Geoff Yu, talking about Japanese currency intervention risks.
"Overall, the dollar environment is driving things," he added.
Sterling, meanwhile, inched higher after a reshuffle of key posts in the government by British Prime Minister Rishi Sunak and the euro was a touch weaker at $1.0687 EUR=EBS .
Britain's currency was about was 0.21% stronger at $1.2254 GBP=D3 and about 0.2% firmer against the euro at around 87.20 pence EURGBP=D3 after news of changes to the make-up of the UK government.
Sunak brought back former leader David Cameron as foreign minister in a reshuffle triggered by his firing of Interior Minister Suella Braverman after her criticism of the police threatened his authority.
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