(Bloomberg) — Yen traders are on alert for the risk of intervention on Monday as holidays from London to New York reduce market liquidity.
Investors will be closely watching trading after Tokyo hours, where a lack of participants could exacerbate exchange-rate moves. The yen is hovering around the 159 level against the dollar, near its weakest level since April 30.
Traders are right to worry about holidays. On April 30, during Japan’s Golden Week period, the government stepped into the currency market, likely buying as much as ¥10 trillion ($63 billion) before it was over on May 6.
“The yen is again suffering across the board,” said Neil Jones, managing director of currency sales and trading at TJM Europe. “The Ministry of Finance could do well to consider selling dollar-yen into the Tokyo close of business on Monday.”
Japan’s currency has been one of the worst performers among Group-of-10 peers in the past three months as rising oil prices from the war in the Middle East stoked inflation fears. Adding to the pressure are concerns over Prime Minister Sanae Takaichi’s spending plans after she called for an extra budget.
“The chance of intervention is higher given the thinner liquidity — but only expect it to be a significant risk above 159.75,” said Damien Loh, chief investment officer at Ericsenz Capital in Singapore. “If it does occur I think it is a buy on dips.”
Japanese Finance Minister Satsuki Katayama this week reiterated her willingness to step into the market if needed to prop up the yen. US Treasury Secretary Scott Bessent also characterized excess foreign-exchange volatility as undesirable in another indication of tacit US approval of Japan’s recent intervention.
“It’s possible that there could be intervention during the holidays when there’s fewer market participants,” said Kumiko Ishikawa, a senior analyst at Sony Financial Group. “But the finance ministry will be considering all sorts of factors such as dollar-yen’s level, the speed of the yen’s weakening and the external environment.”
The rate gap between the US and Japan has also been weighing on the currency after the Bank of Japan held policy steady last month. Overnight index swaps show about an 83% chance of a move in June.
RBC BlueBay Asset Management added to long yen positions this week as the currency drifted back toward 160 per dollar, viewing the level as increasingly attractive amid possible intervention and expectations of a rate hike in June.
Some investors warn that the impact of intervention may be limited unless the BOJ lifts its policy rate. Bessent said he met with BOJ Governor Kazuo Ueda, and that he is confident the governor will “successfully” guide Japan’s monetary policy.
“It would be much more effective for the BOJ to start posturing hawkishly and to guide a more aggressive rate hike path,” said Ericsenz Capital’s Loh.
–With assistance from John Cheng.
More stories like this are available on bloomberg.com
