Yen slips as impact of rate checks, suspected intervention fade
The Bank of Japan triggered a brief rally on Friday morning when it called traders to check on exchange rates
THE yen slipped in choppy trading on Friday (Jul 12) as the positive impact of suspected intervention and rate checks by Japanese authorities began to fade.
The currency was down 0.2 per cent to around 159 per dollar in Tokyo afternoon trading, having lost more than a third of the four-yen surge it saw on Thursday. The Bank of Japan triggered a brief rally on Friday morning when it called traders to check on exchange rates, but those gains evaporated within an hour.
The moves leave Japan no better than it was during April and May, when the government spent a record 9.8 trillion yen (S$82.75 billion) to stem losses. That’s likely to embolden bears to bet on further declines, while also increasing the risk of the finance ministry ordering further intervention to keep them at bay.
The upshot for investors is a nail-biting run to July 31, when both the BOJ and Federal Reserve will deliver policy decisions that may determine the longer-term fate of the currency. A rate hike and large cuts to bond buying by the BOJ, paired with a signal on rate cuts from the Fed, may be enough to put a floor under it.
Anything less would likely leave the focus on structural issues that are undermining the yen, not least Japan’s wide interest rate gap with the US.
“Right now we are seeing two-way activity in the market but no clear directional bias,” said Ruchir Sharma, London-based global head of FX option trading at Nomura International. Sharma added that there was “palpable nervousness in the market” in recent sessions from hedge funds looking to protect carry trades for scenarios like the one that just played out.
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Japan’s top currency official, Masato Kanda, told reporters in Tokyo on Thursday night that he wasn’t in a position to say if the move was intervention. He followed up with comments early Friday, saying that given the yield gap between the US and Japan, speculation was probably behind the moves.
TV Asahi, a Japanese broadcaster, reported officials had stepped into the currency market. Daily newspaper Mainichi Shimbun also reported an intervention, citing an unidentified Japan government official. US Treasury spokesperson Megan Apper declined to comment.
The rate checks from the BOJ came around 8:30 am in Tokyo, according to market participants, who asked for anonymity because the communications are confidential. They said the BOJ asked for rates for the yen against the euro.
The BOJ last conducted checks in September 2022, which were followed a few days later by intervention. Rate checks typically happen when volatility increases and verbal intervention appears insufficient to tame currency moves.
The yen spike on Thursday, which came just after a softer-than-expected reading of US inflation, shared some similarities with this year’s previous interventions, which appear to have happened on April 29 and May 1. Thursday rally was the biggest on a one-day basis since May 1.
The yen’s slump of 11 per cent against the dollar this year makes it the worst-performing Group-of-10 currency. It touched its weakest since 1986 just last week, fueling a new wave of jawboning from Japanese authorities about their willingness to act to bolster the currency if necessary.
“Our practice is basically not to say whether we have intervened or not,” Kanda said Thursday. “While some believe the move was a reaction to the CPI results, others say that other forces may have been at work.”
On Friday morning he said that the number of people who know about intervention is limited, adding that he won’t comment on if the action took place.
Regardless, sustained strength in the yen is unlikely without shifts in US and Japanese policy, said Leah Traub, a portfolio manager at Lord Abbett & Co. While US yields have fallen in recent weeks, the rate differential between 10-year Treasuries and Japanese government bonds remains well above its long-term average over the past decade.
Sentiment has been so poor on the yen that bearish wagers have dominated the market, even after the Bank of Japan in March raised its short-term policy rate for the first time since 2007.
Speculative traders have accumulated a massive bearish bet against the Japanese currency. Non-commercial traders now hold contracts worth about US$14 billion tied to wagers the yen will fall in the weeks to come, the most since 2007, according to Commodity Futures Trading Commission data for the week ended July 2. BLOOMBERG
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