The yen experienced significant volatility on Friday following a sharp 2% gain against the dollar the previous day, triggering speculation about potential intervention by Japanese authorities to support the currency. Market movements intensified after a lower-than-expected US inflation report, causing the yen to spike to 157.44 per dollar, reminiscent of past intervention patterns observed by Japanese authorities.
On Friday morning, the yen’s fluctuations continued, accompanied by reports that the Bank of Japan conducted rate checks, a preliminary step towards potential intervention, according to sources familiar with the matter. Masato Kanda, Japan’s top currency official, refrained from confirming intervention on Thursday night, citing speculative factors linked to the yield gap between the US and Japan.
“We are currently witnessing mixed market activity without a clear directional trend,” remarked Ruchir Sharma, Global Head of FX Option Trading at Nomura International Plc, noting heightened market nervousness among hedge funds safeguarding carry trades.
Reports from Japanese media outlets, including TV Asahi and Mainichi Shimbun, suggested official intervention in the currency market, although specific details were undisclosed. The yen traded at 159.01 against the dollar by mid-morning in Tokyo on Friday, amid choppy trading conditions. Against the euro, it stood at 172.84.
Sources indicated that the Bank of Japan sought indicative exchange rates against the euro, typically a response to increased volatility when verbal interventions prove ineffective. Similar checks were last reported in September 2022, preceding subsequent intervention measures.
Over the past year, the yen has faced substantial depreciation, ranking as the worst-performing currency among the Group-of-10 nations. Recent declines pushed it to its lowest levels since 1986, prompting renewed assurances from Japanese authorities regarding potential support measures.
Thursday’s sharp rally echoed earlier interventions this year, notably on April 29 and May 1, when the Ministry of Finance reportedly intervened with ¥9.8 trillion to mitigate losses. The magnitude of Thursday’s move, comparable to earlier interventions in terms of trading volumes, fueled speculation among foreign exchange brokers.
Masato Kanda reiterated Japan’s policy of ambiguity regarding interventions, stating, “Our practice is generally not to confirm or deny such actions.” Despite various interpretations attributing the yen’s movement to US economic data, market participants remain divided on underlying causes.
Looking forward, analysts suggest sustained yen strength hinges on shifts in US and Japanese monetary policies, with current yield differentials maintaining historical highs despite recent US yield declines. Speculative positions against the yen have surged, highlighting market expectations and potential reactions to future data surprises.
In conclusion, uncertainties persist amid ongoing market dynamics, with global policymakers closely monitoring developments in currency markets for potential impacts on economic stability.
