Yen renews decline as signs of further Japan intervention fade

The yen weakened in Tokyo trading on Monday (Oct 24) despite signs that Japan has ramped up its defence of the currency with a second intervention in two sessions.

The currency whipsawed early in the day, surging to as much as 145.56 per dollar before weakening once more to around the 149 level. On Friday, it soared the most against the greenback since March 2020 amid reports officials intervened again to prop up the currency.

The sharp moves suggest the authorities have taken their gloves off in their battle against traders amplifying yen weakness fuelled by the policy divergence between the US and Japan. The Bank of Japan (BOJ) meets later this week and its decision is likely to be another key catalyst for the embattled currency. 

Finance Minister Shunichi Suzuki told reporters on Monday that the country was in a firm confrontation with speculators and couldn't tolerate excessive currency moves, speaking before the yen rally. He later insisted that the BOJ should reach its own decisions on policy.

Suzuki declined to confirm whether Japan had entered the market again last week. 

Speaking after Monday's sharp moves, top currency official Masato Kanda also declined to give a confirmation, a stance that helps to leave uncertainty and an element of fear in the market.

"I won't comment at all on whether there was intervention or not," Kanda said. "As I said earlier, we will take appropriate measures against excessive moves 24 hours a day, 365 days a year, 24/7. We're going to continue with that all the time."

Yen traders had been bracing for another rocky week as chatter around Friday's suspected intervention mixed with the likely impact of the BOJ meeting. Economists expect the central bank to keep its policy unchanged again at its two-day meeting ending Oct 28.

"Markets tend to move very easily when there's a monetary policy meeting coming up," said Harumi Taguchi, economist at S&P Global Market Intelligence. "So this was likely action with that event in mind. I think this may serve as a message to markets that the government will take decisive action."

When asked by a reporter if the BOJ should change policy given the slide in the yen, the finance minister stuck to the government's view that it was up to the central bank to reach its decisions.

"We have to respect the BOJ's independence," Suzuki said.

The Japanese currency has slumped 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 the economy. That encourages investors to seek out the more attractive returns in dollar assets compared to ones in Japan.

The yen saw an intraday rally of nearly 4 per cent on Friday to just above the 146 level after it neared 152 per dollar. Monday's surge was just under 3 per cent and quickly pared.

In September, the government intervened to support the currency for the first time since 1998, after it fell to 145.90 per dollar. It said it spent US$20 billion that month on intervention, a move that came the day the BOJ reconfirmed its super-easy monetary policy.

Japan likely spent more than US$30 billion last week to support the yen, the Financial Times reported, citing estimates by traders. Some analysts have warned that any intervention will have a limited impact as long as the BOJ maintains its policy. 

"It looks like Japanese authorities acted as moves this morning were not seen based on real money flows," said Yuji Saito, executive director at Credit Agricole CIB's foreign-exchange department in Tokyo. "While it's hard to restrain global dollar buying momentum, it will help buy time." BLOOMBERG

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