Yen slips but holds intervention gains; traders alert to more action

[SINGAPORE/LONDON] The yen slipped on Tuesday (Aug 4) but held on to most of its intervention-driven gains, after last week’s joint action by Tokyo and Washington to shore up the currency kept speculators wary of rebuilding bearish positions.

The yen was last down 0.3 per cent at 157.72 per US dollar, giving back some of its gains after hitting a three-month high of 155.20 the previous session, but remaining well above its 40-year low of 163.99 touched in July.

The Japanese currency had surged as much as 5 per cent over the last three trading sessions, with Japan confirming coordinated yen-buying intervention on Friday with the US in a rare move.

“While joint intervention may prove more effective at helping to provide support for the yen in the near-term, we still believe that it can only buy time,” said Lee Hardman, senior currency analyst at MUFG.

“There will need to be a change in fundamentals as well to encourage a sustainable reversal of the yen weakening trend that has been in place over the last five years,” he added, referencing Japan’s much lower interest rates than the US.

Two market sources told Reuters that the US Treasury bought yen for euros last week instead of selling dollars, in a highly unusual move likely aimed at helping Japan strengthen the yen without encouraging a view that Washington wants a softer greenback.

Against the euro, the yen slipped 0.5 per cent to 181.68, down from Monday’s almost nine-month high of 179.44. Monday’s surge in the yen stirred speculation that Japanese authorities had intervened again, although officials offered no confirmation.

Analysts at Citi said trading volumes in USD/JPY hit roughly US$27 billion in the early morning window on Monday, compared with the recent averages of US$1.9 billion.

Bank of America strategists said that the 155 level could prove to be a critical inflection point in the market as the currency pair found a floor around that level during the intervention in April and May this year.

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Dollar takes a breather

The greenback, meanwhile, was nursing losses, having slid in the wake of the yen-buying intervention and on the back of falling oil prices.

US President Donald Trump said on Monday that talks with Iran were under way, warning that it was a “last chance” for Teheran to sign a good deal to end the five-month-old war.

Iran denied that any negotiations were being held or planned, however.

Against the greenback, the euro was little changed at US$1.152, having hit a 1.5-month peak of US$1.156 in the previous session. Sterling fetched US$1.344.

The dollar index was roughly flat at 99.38, after rising off 99.42, which it touched on Monday.

Meanwhile, the Australian dollar rose 0.5 per cent to US$0.704.

“This week’s non-farm payrolls for July is a key input into the timing of the eventual tightening cycle,” said Joseph Capurso, a strategist at Commonwealth Bank of Australia, referring to the closely watched US jobs report due on Friday.

Markets are currently pricing in roughly 35 basis points’ worth of Fed rate hikes by December. REUTERS