The yen experienced a significant strengthening against the dollar on Tuesday, leading some market participants to speculate that Japanese policymakers had intervened to support the currency. However, others argued that the magnitude of the move was not convincing enough. Traders had been anticipating a possible intervention by Japanese officials to counter the sustained depreciation of the yen.
During Tuesday’s trading session, the dollar surpassed the 150 level against the yen for the first time since October 2022. However, it quickly tumbled to a low of 147.30 as the yen surged. Market analyst Michael Brown from Trader X in London stated that the move had all the characteristics of intervention and that it would be highly unlikely for it to be a mere coincidence.
The dollar reached a high of 150.165 against the yen but was recently trading at 148.76 yen. Some analysts pointed out that the yen’s movement on Tuesday was much smaller compared to the previous year’s intervention by policymakers to support the currency. In 2022, the yen experienced a 4% jump, peak to trough, during Japan’s intervention in September and October, whereas Tuesday’s move only amounted to approximately 2%.
Colin Asher, senior economist at Mizuho in London, suggested that the yen’s movement could be attributed to market expectations of intervention and subsequent reactions. However, he acknowledged that it is uncommon for a currency to experience such an aggressive and rapid shift without a specific reason, usually indicating intervention.
The 150 level is considered significant by many traders as it could potentially trigger intervention by Japanese authorities. These authorities have repeatedly expressed concerns about excessive volatility and currency weakness. However, a senior Japanese ministry of finance official declined to comment on whether Japan had intervened in foreign exchange markets, and the New York Federal Reserve did not respond to requests for comment.
Niels Christensen, chief analyst at Nordea in Copenhagen, noted that the market is highly nervous around the 150 level. He suggested that traders may be cutting their long positions due to this nervousness. Christensen also mentioned that if the move was indeed intervention, it would be expected for the authorities to confirm it and take advantage of the situation.
To support the Japanese currency, authorities would need to utilize Japan’s foreign reserves of dollars to sell for yen. The finance minister issues the order to intervene, and the Bank of Japan executes the order on behalf of the ministry. Some market participants speculated that the Bank of Japan may have been conducting rate checks, which involve calling dealers to inquire about buying or selling rates for the yen. This is often seen as a potential precursor to intervention.
Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets in London, suggested that the yen’s movement could be a result of price checking rather than explicit action. However, he also mentioned that it is unclear and some people might interpret it as a warning from the Bank of Japan.
Japanese authorities are facing renewed pressure to address the sustained depreciation of the yen. This pressure arises as investors anticipate higher U.S. interest rates, while the Bank of Japan maintains its policy of super-low interest rates. The yen has fallen approximately 12% against the dollar year-to-date, complicating the outlook for other central banks. The yen’s weakness is problematic for Japan, as it has led to the relocation of Japanese firms’ production overseas and increased reliance on imports.
Some analysts expected Tokyo to provide an explanation for the yen’s movement. Edward Moya, senior market analyst at OANDA in New York, suggested that the Ministry of Finance might hold a press event or have a key official make a comment early in Asia. Japan’s policymakers also consider it important to seek the support of Group of Seven partners, particularly the United States, if the intervention involves the dollar.
Japan intervened in the market in September 2022, marking its first intervention since 1998, after the Bank of Japan’s decision to maintain an ultra-loose monetary policy caused the yen to drop to 145 per dollar. Intervention occurred again in October of the same year when the yen reached a 32-year low of 151.94.
There are still numerous catalysts that could further strengthen the dollar, potentially causing more challenges for policymakers in Japan and other countries. For instance, a stronger-than-expected U.S. employment report could support the case for a more hawkish stance by the Federal Reserve, leading to a rise in the dollar. The dollar is currently on track for its 12th consecutive week of gains against a basket of currencies. Moya suggested that if intervention were to occur, it would likely happen later in the week after the release of the non-farm payrolls report.
Reporting by Chuck Mikolajczak, Samuel Indyk, Saqib Iqbal Ahmed, Gertrude Chavez-Dreyfuss, Dhara Ranasinghe, and Lucy Raitano; Editing by Ira Iosebashvili, Megan Davies, Jonathan Oatis, Andrea Ricci, Hugh Lawson, Gareth Jones, and Deepa Babington.
