(Reuters) – The Japanese yen rose nearly 3% on Thursday in its biggest daily gain since late 2022, a move local media attributed to a round of official buying to prop up a currency at a 38-year low withered away.
The dollar fell as low as 157.40 immediately after data showed US consumer inflation cooled more than expected in June.
Still, the size and speed of this move put traders on alert to the possibility of Japanese intervention. The authorities intervened in early May to strengthen the yen.
Domestic news service Jiji quoted top currency diplomat Masato Kanda as saying he could not comment on whether or not an intervention took place, but that recent moves in the yen were “not in line with fundamentals.”
COMMENTS:
MICHAEL BOUTROS, CHIEF TECHNICAL STRATEGIST, FOREX.COM, NEW YORK
“I find it hard to believe that someone was waiting there to add fuel to the fire. It would be a very strategic move, but I don’t think that’s how they work. Even more than the nominal level…their claim has always been the speed of the movement. So there was nothing here today, this week, that would indicate that suddenly something would lead to this movement so that they could jump into it.
“I now treat this as a good market mechanism. It was a strong upward trend. We need these withdrawals. These pullbacks are healthy within the uptrends. Even at a basic technical level you can see a difference in momentum on the weekly chart. We also followed this on the daily chart, so in my opinion it was looking for catalysts, and all we needed was that weak print. Not only is the price action correcting lower due to dollar weakness, but we’re also revaluing the rate divergence loans to that carry trade, and we’ll see if that leads to a bigger trend reversal.”
GARRETT MELSON, PORTFOLIO STRATEGIST, NATIXIS, BOSTON
“Just looking at the charts and listening to some of the chatter – it seems quite likely that the MOF has intervened this morning after the CPI print. Deputy Finance Minister Kanda with a typical refusal to answer the question whether or not there was any intervention, but the first leg The decline for the JPY was right on the CPI print, after which it stabilized about 10 minutes later before the next bigger stage came lower.”
“Again, it is entirely possible that fundamentals are a key driver here given the extensive positioning, but a closer look at the timing of the moves without comment from the MOF appears to be an admission that some action is taking place. “
PAULA COMINGS, HEAD OF FX SALES, US BANK, NEW YORK
“The focus in the coming days will be on how today’s move affects overall volatility for companies that hedge both long JPY income and short JPY expenditure.
“We sailed through the technical level we were looking at at 158.26, which we reached on June 20. The next level lower would be 155.70, which was the low on June 12.
“This is a strange time in the market where it can be argued that there is opportunity to enter into options-based strategies at favorable rates and/or prices to buy or sell JPY.”
ATHANASIOS VAMVAKIDIS, GLOBAL HEAD G10 FX STRATEGY, BOFA GLOBAL RESEARCH, LONDON
“I think it was just the reaction to the weak US CPI and pressure on the long USD position. The USD weakened across the board, but especially against the JPY due to positioning.”
CHRIS SCICLUNA, HEAD OF ECONOMIC RESEARCH AT DAIWA CAPITAL MARKETS, LONDON
“The MOF will not confirm this for now, but the scale of the move gives a strong impression that it has been active and taken advantage of the post-US CPI data to take action.”
HELEN GIVEN, FX TRADER, MONEX US, WASHINGTON DC
“Traders have speculated in recent months that any potential intervention by Japanese currency officials could be financed by the sale of their US Treasuries, so any substantial drop there will have a bigger impact on the JPY than on other G10 currencies.
“We will of course have to see if today’s big move for the JPY will hold up over the next week, but this is certainly good news for the BoJ as speculation continues as to whether and when they might intervene on behalf of the teetering currency have consistently plagued the markets over the past month.”
SAMEER SAMANA, SENIOR GLOBAL MARKETS STRATEGIST, WELLS FARGO INVESTMENT INSTITUTE, CHARLOTTE, NORTH CAROLINA
“Now that CPI is doing what it’s doing, it’s hard to tell the two apart. Given that most of the moving happened around the time CPI was released, I’d say it’s more CPI than intervention. It’s possible they did something last night.”
GEOFF YU, SENIOR MACRO STRATEGIST, BNY MELLON, LONDON:
“We believe that interest rate differentials are clearly converging now that a rate cut in September (US) has been priced in.”
“Hard data also shows that short positions in the yen are the strongest in almost three years and are quite extreme, so there is no resistance to upside.”
MARC CHANDLER, PRINCIPAL MARKET STRATEGIST, BANNOCKBURN GLOBAL FOREX, NEW YORK
“I would be surprised if that were the case, partly because of the time zone and partly because the dollar is responding to fundamentals as we would expect – softer CPI, lower US interest rates, and of course the dollar/yen is falling… I think the market is catching on leading from the wrong side.”
“I think there are three general conditions. Volatility, and the volatility is not very high, I didn’t go into that today. Secondly, I think they care about a one-way market, and it hasn’t really been a one-way market for a few weeks. And third, I think about how the dollar responds to the fundamentals, and it responds in accordance with the fundamentals. So in my opinion the three broad criteria are not met.”
GIUSEPPE SERSALE, PORTFOLIO MANAGER, ANTHILIA, MILAN
“The yen is currently making fireworks. To be honest, I can’t say exactly what makes him tick. If the move continues, it could mean that short-term positioning was too skewed towards the short yen. And these US numbers created a situation where there is a violent recovery and a series of stop-losses for those short of the yen.”
“However, if the movement deflates, halves or becomes very erratic during the day, it means that there has also been a contribution from the Japanese Ministry of Finance, which is not admitting this at the moment… however, the movement seems excessive as the The euro gains half a point, the pound gains half a point, and so on. That’s why I have the impression that there is also a small contribution from the Japanese.”
JAMES MALCOLM, HEAD OF FX STRATEGY, UBS LONDON:
“My personal assessment is that this is not an intervention.”
“The point is that the market position is so extensive that it can feed itself very easily. Regardless of whether you think the market should stabilize, if the dollar-yen falls and you are long, you should get out. … that is the definition of a classic carry-unlax.”
“There’s an incentive to maybe intervene a little bit later in the day to make sure it doesn’t bounce back.”
KENNETH BROUX, HEAD OF CORPORATE RESEARCH FX AND RATES, SOCIETE GENERALE
“It’s certainly a big step, but I don’t think we can say it has anything to do with intervention,” said Kenneth Broux, head of FX and rates business research at Societe Generale (OTC:).
“The US CPI has been a trigger and it is more about stopping the trigger than intervention,” he said.
STEVE ENGLANDER, HEAD, GLOBAL G10 FX RESEARCH AND NORTH AMERICA MACRO STRATEGY, STANDARD CHARTERED BANK NY BRANCH, NEW YORK
“The yen story was clearly a story about interest rate differentials and the positions – long positions in the dollar/yen – have piled up. So when you get a figure that is so definitive in terms of making, say, September very likely and restoring the disinflation narrative, that interest rate differential narrative erodes. Most likely it was clearing positions, because my sense from clients, especially short-term traders, is that everyone had a long dollar/yen that they thought might be at 165 or higher.”
“There’s vague speculation about intervention, everyone looks at the price chart and says, oh, that’s a pretty sharp drop, so maybe it could be that way. The answer is: it could be, but I would say it’s a square of position rather than any official move.’
LEE HARDMAN, SENIOR FX STRATEGIST, MUFG, LONDON
When the market is heavily positioned in one direction and then moves the other way, this can trigger abrupt moves. The long position in dollar/yen was very tense
COLIN ASHER, SENIOR ECONOMIST, MIZUHO, LONDON
“Most likely it is just short-covering as speculation about future US interest rate cuts increases in the wake of the negative CPI numbers.”
“is the G10 pair where positioning is stretched the most.”
“It is certainly a significant step, with the intraday range being the largest since the intervention in early May.”
