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A sharp rise in the yen is leaving traders on high alert for any evidence that authorities will take further action to support the Japanese currency.
The yen rallied as much as 1.2% to 158.22 per dollar in New York trading on Wednesday, a move that briefly stoked speculation that officials were contacting banks to check on the exchange rate, often a precursor of intervening. By the end of the session, the yen pared some of its gain, leaving market participants without clear signs that official action had taken place.
The move “shows how sensitive positioning has become,” said Nathan Thooft at Manulife Investment Management. “The market got the message that the authorities want a stronger yen.”
The yen began strengthening earlier in the day, after a Bank of Japan board member raised the possibility of outsize or back-to-back interest-rate hikes. The sudden move in New York trading reverberated across the $9.5-trillion-a-day currency market. The Bloomberg Dollar Spot Index fell as much as 0.3%, while a gauge of emerging-market currencies climbed. The yen also surged about 1% against the euro.
The magnitude of the initial spike was smaller than a month ago when Tokyo and Washington joined forces to support the yen to a degree unseen in decades, raising the stakes for anyone betting against the currency. Their first coordinated yen-buying operation since 1998 sparked a rally of about 5% from the weakest level in around four-decades near 164 per dollar, with both governments signaling further joint action if needed.
It was also relatively limited when compared to other recent episodes involving official action. The yen jumped as much as 1.75% in January after the Federal Reserve Bank of New York contacted financial institutions to ask about its exchange rate.
The Treasury didn’t respond to a request for comment on whether it engaged in intervention or rate checks Wednesday. The New York Fed also didn’t comment.
“I am skeptical based on the size of the move,” said Andrew Hazlett, a foreign-exchange trader at Monex Inc., referring to the possibility of intervention on Wednesday.
Japan spent a record $96.4 billion over the past month to support the yen after it tumbled to a four-decade low, according to Finance Ministry data. Japanese officials have repeatedly indicated that it is the speed and disorderliness of currency moves, rather than any particular exchange-rate level, that is key in assessing the need to intervene.
The yen has been weighed down by Japan’s wide interest-rate gap with other major economies, as well as concerns over the country’s fiscal outlook given Prime Minister Sanae Takaichi’s aggressive spending plans. Speculative positioning is also turning against the yen again, with hedge funds rebuilding short positions after initially slashing bearish bets following the intervention.
In the face of the yen weakness, Takaichi’s government is said to be supportive of a near-term BOJ rate hike as early as September.
Treasury Secretary Scott Bessent said he expects Bank of Japan Governor Kazuo Ueda to “do the right thing” on monetary policy, while describing recent moves in the yen as “pretty well contained.” He also defended his move to support the yen, saying that any extreme volatility in the Japanese currency could feed through to higher US interest rates.
Earlier in the session, BOJ board member Hajime Takata reinforced speculation among investors that the central bank could take a more aggressive approach than expected. He said a 25-basis-point hike “is not necessarily set in stone,” and that generally speaking, back-to-back rate hikes would be a possibility, too.
Ueda had previously hinted that a rate hike is likely when the board convenes for a meeting later this month, saying that officials will decide on policy with upside price risks in mind. Overnight index swaps are pricing in a rate hike at the BOJ’s September meeting.
With assistance from Yash Roy, Cameron Fozi, Naomi Tajitsu, Maria Eloisa Capurro and Issei Hazama.
This article was generated from an automated news agency feed without modifications to text.
