Yen recovers lost ground on BOJ rate check, hints on intervention

THE yen jumped over 1 per cent on Wednesday (Sep 14) after media reported that the Bank of Japan (BOJ) conducted a rate check in apparent preparation for currency intervention, while other majors tried to regain the ground they'd lost a day earlier on the surging US dollar.

The US dollar slid more than 1 per cent to 142.9 yen after the Nikkei website reported the rate check, citing unidentified sources. In a rate check, central bank officials call up dealers and ask for the price of buying or selling yen.

Reuters later confirmed the rate check with a market source.

Earlier in the day, the Japanese currency had softened to as low as 144.97 per US dollar, extending its sharp decline from the day before when an unexpected rise in the US consumer price index, likely leading to further aggressive rate hikes from the Federal Reserve, sent the greenback soaring.

The US dollar index, which tracks the currency against 6 main peers, jumped 1.5 per cent on Tuesday, its largest daily percentage gain since March 2020.

Japanese Finance Minister Shunichi Suzuki told reporters on Wednesday that recent yen moves have been "rapid and 1-sided", adding that yen-buying currency intervention was among the government's options should such moves continue.

"If the market continues to sell the yen, there is more pressure for the (Ministry of Finance) and BOJ to communicate to the market that the recent move has been too fast," said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui DS Asset. Management

However, actually intervening in support the currency would be a larger step.

"Currently, the US dollar is becoming stronger and the yen weakening due to the big interest rate differentials between the United States and Japan, so it's hard (for intervention) to be effective. That's why I think it's better to wait," said Masafumi Yamamoto, chief currency strategist, Mizuho Securities.

"If the US dollar rises above 145 yen, the possibility of intervention will rise to about 60 per cent from 10 per cent to 20 per cent before, rather than becoming 100 per cent."

The currency hit a 24-year low of 144.99 last week.

As inflation is a small concern in Japan, authorities are keeping yields on Japanese government bonds pinned down to help with the economic recovery.

In contrast, the yield on 2-year Treasury notes , which typically reflects interest rate expectations, peaked at 3.804 per cent on Wednesday, the highest since 2007. The 10-year yield last stood at 3.4410 per cent.

Financial markets now have fully priced in an interest rate hike of at least 75 bps at the conclusion of the Fed's policy meeting next week, with a 30 per cent probability of a super-sized, full percentage-point increase, according to the CME's Fedwatch tool.

The change followed red-hot inflation figures. A day earlier, the probability of a 100 bps hike was zero.

Other currencies were still hunkered down after yesterday's battering.

The euro managed to climb back above parity with the US dollar to US$1.0014, up 0.47 per cent, but continued to reel from Tuesday's 1.5 per cent fall, and was not far from last week's 20-year low of US$0.9864.

The European Commission's unveiling of a series of proposals to curb the energy price spike that has rocked Europe and weakened the euro, also gave the common currency some support.

Sterling which lost 1.6 per cent on Tuesday, was up 0.43 per cent at US$1.1543 after lower fuel prices caused an unexpected fall in British inflation in August, according to figures released Wednesday.

The risk-sensitive Aussie was flat at US$0.67375, after a precipitous 2.26 per cent slide overnight. Bitcoin, which also moves in line with investors' attitude to riskier assets, was steady at US$20,300 after losing 9.9 per cent on Tuesday. REUTERS

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