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The yen rose sharply against the dollar in Asian markets on Monday afternoon, rebounding from a 34-year low hit hours earlier, raising concerns that Japanese authorities had intervened to support the yen's weakness after weeks of warnings. gave rise to speculation.
The yen began to appreciate from 159.5 yen to 155.2 yen to the dollar in 50 minutes from around 1:00 pm Tokyo time. Hong Kong traders said it was “very likely” that Japanese authorities would intervene.
Earlier in the day, the yen rose above 160 yen against the dollar, with many traders assuming this level would require intervention by Japan for the first time since late 2022. Japanese markets were closed for the first day of Golden Week. As a result, sales were weak.
Traders said that although there was no hard evidence of intervention, by Monday afternoon there was a clear sense in the market that the breakout of the 160 yen level had forced Japanese authorities to act. They added that given the volatility in trading and speculation, some investors may have been forced to exit some of the huge bets they had piled up against the yen in recent weeks.
The Japanese government had warned for weeks that it was ready to support the yen if trading became too volatile. Bank of Japan Governor Kazuo Ueda said in mid-April that the Bank of Japan may take action if the impact of the weaker yen becomes “so large that it cannot be ignored.”
Since the start of the year, the yen has fallen about 11% against the dollar, weakening amid the disparity between high interest rates in the United States and near-zero interest rates in Japan. The wide gap could last longer than expected, with the Federal Reserve saying it may need to keep interest rates high to rein in inflation.
The “yen carry'' trade, in which investors borrow yen cheaply to fund investments in high-yield assets, is unlikely to start to decline significantly until the Federal Reserve starts cutting interest rates, said the head of foreign exchange and interest rate strategy at the Bank of Japan. Shusuke Yamada said. America's.
In his memo, Yamada said that keeping the yen above 155 yen to the dollar will require continued intervention by the Japanese authorities to buy time before the Bank of Japan raises interest rates, but at this point, interest rate hikes are unlikely. It said it was not expected for at least three months. He added that any intervention would need to be larger than Japan's series of interventions in 2022, totaling about $62 billion.
Benjamin Shatil, JPMorgan's senior economist for Japan, said even if Japanese authorities intervened, the effect would be weak because investors would continue to take advantage of Japan's low interest rates and continue using the yen as a funding currency. He said it may have been limited.
“This is likely to be just the beginning of what could be a very volatile session for the yen, as this is a busy week on the US policy and data front,” he said.
When asked by reporters whether the Ministry of Finance had intervened, Masato Kanda, the head of Japan's monetary authority, said, “I have no comment at this point.'' “We are currently working on it,” he added, according to local media.
The yen's decline accelerated on Friday after the Bank of Japan kept interest rates near zero, with Governor Ueda saying the weaker currency had “not had a significant impact” on Japan's underlying inflation trend.
The weaker yen has led to an increase in inbound tourists and a rapid increase in corporate profits earned overseas. But business leaders have been calling on the government to take action in recent weeks, as the currency devaluation raises the cost of living and hurts domestic consumption.
