Yen surges with traders on high alert for further intervention
The Japanese currency rallied as much as 1.2% to 158.22 per dollar
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[TOKYO] The Japanese yen strengthened sharply against the US currency, leaving traders hyper-vigilant for evidence that authorities once again intervened in the foreign-exchange market.
The Japanese currency rallied as much as 1.2 per cent to 158.22 per dollar, a sharp move that put market participants on guard for signs that authorities are stepping into the market. It had strengthened earlier in the session after Bank of Japan Board Member Hajime Takata, one of the bank’s most hawkish members, left the door open for an outsized interest-rate move as well as back-to-back rate hikes.
“The market remains on high intervention alert,” said Alex Cohen, a foreign-exchange strategist at Bank of America.
Wednesday’s (Sep 2) moves ricocheted across the US$9.5-trillion-a-day currency market. The Bloomberg Dollar Spot Index fell 0.3 per cent, its biggest intraday drop since Aug 21, while a gauge of emerging-market currencies climbed to session highs.
The magnitude of the move, however, fell short of those seen about a month ago, when Tokyo and Washington joined forces to support the yen to a degree unseen in decades, raising the stakes for anyone betting against the currency. Their first coordinated yen-buying operation since 1998 sparked a rally of about 5 per cent from the weakest level in around four-decades near 164 per dollar, with both governments signalling further joint action if needed.
The Treasury didn’t immediately respond to a request for comment on whether it engaged in intervention or rate checks on Wednesday.
“We hear rumours that this is intervention, but I am skeptical based on the size of the move,” said Andrew Hazlett, a foreign-exchange trader at Monex Inc. Still, the moves in the yen against the dollar and euro “could not be explained otherwise.”
Japan spent a record US$96.4 billion over the past month to support the yen after it tumbled to a four-decade low, according to Finance Ministry data. Japanese officials have repeatedly indicated that it is the speed and disorderliness of currency moves, rather than any particular exchange-rate level, that is key in assessing the need to intervene.
The yen has been weighed down by Japan’s wide interest-rate gap with other major economies, as well as concerns over the country’s fiscal outlook given Prime Minister Sanae Takaichi’s aggressive spending plans. Speculative positioning is also turning against the yen again, with hedge funds rebuilding short positions after initially slashing bearish bets following the intervention.
In face of the yen weakness, Takaichi’s government is said to be supportive of a near-term Bank of Japan rate hike as early as September.
Treasury Secretary Scott Bessent said he expects Bank of Japan Governor Kazuo Ueda to “do the right thing” on monetary policy, while describing recent moves in the yen as “pretty well contained.” He also defended his move to support the yen, saying that any extreme volatility in the Japanese currency could feed through to higher US interest rates. BLOOMBERG
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