ADVERTISEMENT

Yen Weakens Past Level That Triggered Last Japan Intervention

The yen fell back into prime intervention territory, as analysts debated whether its decline was extreme enough

<div class="paragraphs"><p>Bundles of Japanese 1,000 yen banknotes on a tray arranged at a branch of Resona Bank in Tokyo. (Photo: Bloomberg)</p></div>
Bundles of Japanese 1,000 yen banknotes on a tray arranged at a branch of Resona Bank in Tokyo. (Photo: Bloomberg)

The yen fell back into prime intervention territory Wednesday, as analysts debated whether its decline was extreme enough for Japanese authorities to prop up the currency as they did last month.

The currency fell to 146.39 per dollar, surpassing the level that prompted Japan’s first intervention to buy the yen since 1998. While Japan’s Finance Minister Shunichi Suzuki and forex chief Masato Kanda are in Washington DC to attend Group of Twenty and other meetings, the government’s chief spokesperson Hirokazu Matsuno was asked about the yen Wednesday in a regular press conference.

“We’ll continue to monitor moves in the foreign exchange market with a high sense of urgency,” said Matsuno, repeating recent remarks from senior officials on the yen. “We’ll take appropriate responses against excessive moves.’

Yen Weakens Past Level That Triggered Last Japan Intervention

The yen has slumped to a 24-year low this year as traders focused on the widening yield gap between the US and Japan, with the former hiking rates aggressively and the latter keeping them at rock bottom levels to boost a sluggish economy. That encourages investors to seek out the more attractive returns in dollar assets from money-market instruments to fixed-income securities compared to Japanese ones.

Traders will be looking at the 1998 high of 147.66 as the next key target, though strategists have said authorities won’t necessarily have a line in the sand at which they’ll intervene again and are likely focusing on the speed of declines. The Ministry of Finance spent 2.84 trillion yen ($19.6 billion) in September to limit the yen’s losses.

“USD/JPY may top 146 briefly today, but there is so much tension that duration time will be short,” said Yoshio Iguchi, managing director of Traders Securities in Tokyo. “The chicken race will continue with people wanting to test the upside but at the same time scared of being countered by intervention.”

Policy Pressure

Despite the efforts of authorities, the Bank of Japan’s easy monetary policy continues to weigh on the currency. Businesses have warned about the negative impact on the domestic economy and households are bracing for a cost-of-living crisis should inflation take off.

Meanwhile, a selloff in Treasuries this week has helped push the dollar higher, increasing the pressure.

“With Treasury yields seemingly heading back above 4% at 10-years, the dollar generally bid on risk aversion and Japanese Prime Minister Kishida yesterday fully endorsing Kuroda and BOJ policy, higher dollar-yen levels are readily justified,” said Ray Attrill, head of foreign-exchange strategy at National Australia Bank Ltd. “But if we see a rapid move up from here as we are just now seeing, then we may see another burst of intervention.”

Still, evidence for the Japanese government’s reasoning behind stepping into the market last month looks less compelling at the moment. One-week historical volatility in the dollar-yen has fallen to its lowest since March, indicating recent moves are far from extreme.

Yen Weakens Past Level That Triggered Last Japan Intervention

“Tokyo is unlikely to surrender so easily to the market, but the line of defence could be moved higher in response to the broad dollar uptrend,” said Alvin Tan, head of Asia foreign-exchange strategy at Royal Bank of Canada in Singapore.

Intervention Hopes See Japan Retail Traders Bet on Yen Rebound

Markets are expecting the Federal Reserve to continue with its most aggressive monetary policy tightening in decades, especially with recent data showing continued strength in the labor market. Thursday’s US inflation report is the next key catalyst for investors.

On dollar-yen, “players probably want to challenge the upside while they can and may be seeing today as a good time before US CPI,” said Koji Fukaya, a fellow at Market Risk Advisory in Tokyo. “If USD/JPY rises after CPI and there is no sign of intervention, they can still continue to sell the yen.”

(Updates with additional comment in last paragraph.)

More stories like this are available on bloomberg.com

©2022 Bloomberg L.P.