The yen jumped suddenly against the dollar on Monday, with traders citing yen-buying intervention by Japanese authorities to try to stem a relentless fall in the currency to levels last seen over three decades ago.
The yen rose sharply to 155.01 per dollar from as low as 160.245 earlier in the day. Trade sources said Japanese banks were seen selling dollars for yen JPY=EBS. The dollar was last fetching 157.10 yen
Traders had been on edge for weeks for any signs of action from Tokyo to prop up a currency that has fallen 11% against the dollar so far this year. The yen plunged to 34-year lows even though the central bank exited from negative interest rates in a historic move last month.
Currency traders have bet that despite the change, Japanese rates will remain low for some time in contrast to relatively high US interest rates.
Japan’s top currency diplomat Masato Kanda declined to comment when asked if authorities had intervened.
“I won’t comment now,” Kanda, the vice finance minister for international affairs, told reporters.
Japan’s Ministry of Finance was not immediately available for comment, with markets in the country closed for a holiday on Monday.
“The move has all the hallmarks of an actual BOJ intervention and what better time to do it than on a Japanese public holiday, which means lower liquidity in USD/JPY and more Bang for the Bank of Japan’s buck!”, said Tony Sycamore, Sydney-based market analyst at IG.
The yen has been steadily sliding for more than three years and has lost more than one-third of its value against the dollar since the start of 2021. In real terms the yen has been at its weakest since at least the 1970s.
NEW LINE IN SAND?
A weaker yen is a boon for Japanese exporters, but is a headache for policymakers as it increases import costs, adds to inflationary pressures and squeezes households.
The yen had moved nearly 3.5 yen between 158.445 and 154.97 on Friday as traders vented their disappointment that the BOJ kept its policy settings unchanged last week while offering few clues on reducing its Japanese government bond (JGB) purchases – a move that some traders thought would put a floor under the currency.
BOJ Governor Kazuo Ueda told a press conference after the meeting that monetary policy does not directly target currency rates, although exchange-rate volatility could have a significant economic impact.
The yen has been under pressure as US interest rates have climbed and Japan’s have stayed near zero, prompting investors to cash out of yen and buy dollars for its higher yield to earn so-called “carry”.
The US-Japan government bond yield gap for 10-year tenures is about 375 bps JP10US10=RR, providing a powerful incentive for yen bears.
Christopher Wong, a currency strategist at OCBC in Singapore, said such a wide differential “may suggest that intervention may not be as effective.
“Hence, a combination of BOJ demonstrating urgency to normalize policy and MOF conducting FX intervention may perhaps be more effective than the MOF doing a solo.”
The suspected intervention happened days ahead of the Federal Reserve’s policy review on May 1. Expectations for Fed rates cuts have been pushed back all year as US inflation remained elevated. Policymakers, including Fed Chair Jerome Powell, have emphasized rate changes will be dependent on data.
To support the Japanese currency, authorities need to use Japan’s foreign reserves of dollars to sell for yen. During the process, the finance minister issues an order to intervene, and the BOJ executes the order as the ministry’s agent.
Japan intervened three times in 2022, selling the dollar to buy yen in September and October, as the yen slid towards 152 to the dollar, a 32-year low at the time. Tokyo is estimated to have spent as much as 9.2 trillion yen ($60.78 billion) defending the currency.
The United States, Japan and South Korea agreed earlier this month to “consult closely” on currency markets in a rare warning and Tokyo has stepped up its rhetoric against excessive yen moves.
The yen has also hit multi-year lows against the euro, Australian dollar and Chinese yuan.
“Today’s move, if it represents intervention by the authorities, is unlikely to be a one-and-done move,” said Nicholas Chia, Asia macro strategist at Standard Chartered Bank in Singapore.
“We can likely expect more follow through from MOF if USD-JPY travels to 160 again. In a sense, the 160-level represents the pain threshold, or new line in the sand for the authorities.”
(Reuters)
