(Bloomberg) — The yen swung between gains and losses after its intervention-driven rally stalled, spurring speculation that Japanese authorities could step into the market again.
In choppy trading, the currency was up about 0.1% to 159.35 against the dollar as of 11:30 a.m. in New York. While it had surged as much as 3.3% on Thursday after Japan likely spent around $53 billion intervening in the currency market, the currency’s rally stalled on Friday after the Bank of Japan kept its interest rates unchanged.
“Traders are likely to be wary of follow-up intervention efforts given the yen’s muted reaction,” said Alex Loo, an economist at TD Securities in Singapore.
Thursday’s operation was estimated at around ¥8.45 trillion ($52.8 billion), according to data compiled by Bloomberg and based on a comparison of BOJ accounts released Friday and money brokers’ forecasts. That would likely be the biggest-ever intervention on a single day by Tokyo. The flurry of yen buying on Thursday drove traded volumes in the currency to the highest in nearly 12 years, according to CME Group.
But even that scale of intervention has had a limited impact in foreign-exchange markets. The yen, which has fallen to its weakest mark since 1986 in recent months, has continued trading under relentless pressure from rising oil prices, persistent budget deficits and a yawning interest-rate gap.
“Ultimately, intervention will likely have only a temporary effect on the currency, unless fundamentals change,” said Yusuke Miyairi, a foreign-exchange strategist at Nomura International Plc.
Japan’s central bank, however, chose to keep its interest rates steady on Friday, a decision expected by most economists surveyed by Bloomberg. At a post-decision briefing, Governor Kazuo Ueda offered little fresh support for the currency, opening the door to the possibility of rate hikes at upcoming meetings without signaling this was likely.
That left the yen’s intervention-fueled rally stalling in choppy trading on Friday. It was modestly stronger against almost all of its Group of 10 peers. It was up 0.6% against the Swiss franc and 0.3% versus the euro as of 11:30 a.m. New York time. Nomura strategists recommended traders buy the euro against the yen, targeting a roughly 4% rally in the single currency.
Meanwhile, some market participants renewed their speculation that authorities could step in yet again after Treasury Secretary Scott Bessent said in a social media post that the US and Japan “enjoy a strong relationship and close coordination.” That came after he said on Fox Business that the yen is “very undervalued” and “excess volatility” isn’t healthy.
Intervention “works to dampen the currency’s sensitivity to cyclical momentum for a time,” a Goldman Sachs team including Michael Cahill and Lexi Kanter wrote Friday. “While not a ‘sustainable solution,’ it is effective and Japan has significant FX reserves to sustain the policy for a while.”
What Bloomberg Strategists Say…
“The widening US–Japan rate differential remains one of the primary drivers sustaining USD/JPY at elevated levels. Ueda’s warning of upside inflation risks falls short of signaling that rate hikes will be brought forward, especially given his emphasis on assessing the effects of previous tightening, developments in the Middle East, AI and currency moves.”
-Andre de Silva, Markets Live Macro Strategist, Hong Kong. For the full analysis, click here.
–With assistance from Mia Glass, Naomi Tajitsu and Anya Andrianova.
(Updates with comments, pricing and detail throughout.)
More stories like this are available on bloomberg.com
