(Bloomberg) — The yen advanced more than 3% against the dollar late in New York, fueling speculation that Japanese authorities intervened for a second time this week to support the currency after a prolonged bout of weakness.
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The yen strengthened to 153.04 per dollar from around 157.58 as more than $4 billion of yen-related futures were exchanged in the final stretch of the trading session. That was the largest number of contracts since Feb. 2, according to volumes data recorded by CME. The currency was trading around 155.79 at 9:05 a.m. in Tokyo, having given back some of the earlier move.
“It would certainly appear to have the characteristics of an intervention,” said Nathan Thooft, global chief investment officer for the multi-asset solutions team and senior portfolio manager for Manulife Investment Management. “Repeated attempts certainly send a message to the market and while it may not fully hold, it should have some impact on preventing further meaningful weakness.”
Japan’s top currency official Masato Kanda said he had nothing to say on whether Japan intervened in the yen when asked in the aftermath of the move. The comment appears to fit in with Tokyo’s strategy of trying to keep market players in the dark over its stance on taking action and keeping them wary.
The currency market has been on alert for months about potential intervention, with Japanese officials ratcheting up their rhetoric around the pace of the yen’s slide. On Monday, the currency erased losses and quickly gained almost 3% after touching a 34-year low.
For traders around the world, all signs pointed to one cause: Japan was tired of jawboning and had taken action to defend its currency.
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While officials declined to comment on any intervention, a Bloomberg analysis of the central bank’s current account suggests the nation probably spent about ¥5.5 trillion ($34.8 billion) to support the currency on Monday. Markets won’t know for sure until official figures are published on the last day of May, showing whether Japan bought or sold yen this week.
Uphill Battle
Policymakers will need to spend a lot of money to meaningfully boost the yen. In addition, the gulf between Japan’s ultra-easy monetary policy — emphasized by the Bank of Japan’s recent decision to keep monetary policy unchanged at its April meeting — has made its currency particularly susceptible to losses.
Japan faces “an uphill battle to sustainably strengthen the yen given strong fundamentals such as wide interest rate differentials between the US and Japan and healthy risk appetite,” Kristina Clifton, senior currency strategist at Commonwealth Bank of Australia, wrote in note.
While some past cases of extreme moves in the yen have been attributed to algorithmic trading, the combination of the spike at the end of the trading day when liquidity is usually thinner could have provided an opportune moment for Japanese authorities to act.
“Illiquid conditions close to end of day provided a good environment for another move to be effective,” said Helen Given, a foreign-exchange trader at Monex.
Looking ahead, the likelihood of sharp moves in the market during a looming four-day holiday in Japan and with London markets closed on Monday may have also been a cause for concern in the minds of Japan’s currency officials. That may have been a motive for taking pre-emptive action, if officials did intervene.
Strong Dollar
Japan is not alone in struggling to address weakness in its currency as persistently-high US interest rates and the strong dollar reverberate through markets around the world. Last month, the US, Japan and South Korea made a trilateral statement on the recent sharp currency moves. The US Treasury didn’t immediately respond to a request for comment on Wednesday.
Earlier on Wednesday, the US Federal Reserve held interest-rates steady, with Chair Jerome Powell indicating that the central bank was unlikely to cut any time soon.
“After Powell’s speech, US interest rates and the dollar went down but the yen didn’t move much, so Japanese authorities might have tried to do another intervention at the thin market around NY close,” said Takafumi Onodera, who’s in charge of sales and trading at Mitsubishi UFJ Trust & Banking Corp. in New York.
The dollar pared losses against other Group-of-10 currencies in the wake of Powell’s speech. The more-than-3% advance for the yen was the currency’s largest intraday gain since December 2023.
Still, with markets jumpy and looking for action, some said Wednesday the appearance of possible intervention could instead be the result of over-extended positioning.
“If you are into conspiracy theories, then you’d probably believe a nefarious plan on the yen was hatched,” said Martin Whetton, head of markets strategy at Westpac Banking Corp. in Sydney. “But the reality would be a holiday Monday, US rates pricing that had shifted so far to the hawkish pivot from Powell and FOMC, and a stretched yen ripe to be moved.”
–With assistance from Erica Yokoyama, Robert Fullem, George Lei, Masaki Kondo, Matthew Burgess and Michael G. Wilson.
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