By Rae Wee and Vidya Ranganathan
(Reuters) -The yen jumped against the dollar on Monday, with traders citing Japanese authorities’ intervention on yen buying as a trigger for the revival of a currency languishing at levels last seen more than three decades ago. were seen.
The dollar fell to a low of 154.40 yen, down from a high of 160.245 earlier in the day. Last trading was around 156.80 yen. Banking sources said Japanese banks were selling dollars for yen. The US currency last traded at 156.22 yen.
The Wall Street Journal said on Monday that Japanese financial authorities had intervened in the market, citing people familiar with the matter.
Traders have been on edge for weeks for signs of action from Tokyo to prop up a currency that has lost 11% against the dollar so far this year and was trading at a 34-year low despite the historic departure of the central bank from negative interest rates last month. .
“Last night’s volatility comes after the central bank opted not to adjust its asset purchase volumes in last week’s decision, leaving interest rate spreads at spectacularly wide levels and leaving policymakers with little ability to reverse the currency’s decline. to put a stop to it,” said Karl Schamotta, Chief Market. Strategist at Corpay.
He added that the break above 160 clearly amounted to the kind of “disorderly” move that the Treasury has previously shown itself prepared to tackle. “Algo-driven sales may have continued during holiday-thinned trading conditions.”
Currency traders expect Japanese interest rates to remain low for some time to come, in contrast to the relatively high American interest rates.
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Japanese government bonds offer yields well below those of U.S. government bonds and other foreign government bonds, which draw a steady flow of Japanese money abroad, keeping the yen under pressure.
Japan’s top currency diplomat Masato Kanda declined to comment when asked whether authorities had intervened, but said current developments in the currency market were “speculative, rapid and abnormal” and could not be overlooked.
Japan’s Ministry of Finance (MOF) was not immediately available for comment as the country’s markets were closed for a holiday on Monday.
“If this move represents an intervention by the authorities, it is unlikely to be a one-off,” said Nicholas Chia, Asia macro strategist at Standard Chartered (OTC:) Bank in Singapore.
“We can probably expect more results from MOF if the dollar/yen pair moves back to 160. In a sense, the 160 level represents the pain line, or a new line in the sand for the authorities.”
A weaker yen is a boon for Japan’s exporters but a headache for policymakers as it raises import costs, increases inflationary pressures and puts pressure on households.
Bank of Japan Governor Kazuo Ueda said at a news conference after a meeting last week that monetary policy does not directly target currency rates, although exchange rate volatility could have significant economic consequences.
The yen’s decline on Friday came after the central bank kept policy settings unchanged and gave little guidance on reducing purchases of Japanese government bonds (JGBs) – a move that could help put a floor under the yen.
“We will only know later whether this is actually an intervention,” said Mahjabeen Zaman, head of foreign exchange research at ANZ in Sydney.
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“In previous interventions we have seen that the yen’s immediate response is to move a few yens, but then trade back in line with fundamentals. I think the biggest driver for the dollar/yen is the interest rate spread between the US and Japan.”
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The BOJ has no mandate to manage the currency, but a weak yen complicates its goal of achieving sustainable inflation. The country also cannot raise interest rates quickly for fear of destabilizing Japan’s heavily indebted government and economy.
The suspected intervention took place days before the Federal Reserve’s May 1 policy review. Expectations for Fed rate cuts have been pushed back throughout the year as US inflation remained high. Policymakers, including Fed Chairman Jerome Powell, have emphasized that interest rate changes will depend on data.
This could mean that interventions can only help to put a floor under the yen if the central bank’s policy also changes.
“A combination of the BOJ demonstrating the urgency to normalize policy and the MOF conducting currency intervention may be more effective than the MOF going solo,” said Christopher Wong, currency strategist at OCBC in Singapore.
Japan intervened in the foreign exchange market three times in 2022, selling the dollar to buy the yen, first in September and again in October when the yen slid toward 152 per dollar, a 32-year low at the time. It is estimated that Tokyo spent around $60 billion defending the currency at the time.
The United States, Japan and South Korea agreed earlier this month to “close consultations” on currency markets in a rare warning, and Tokyo has stepped up its rhetoric against excessive moves in the yen.
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On Monday, the Federal Reserve Bank of New York declined to comment on the currency market action, as did the European Central Bank.
The yen has also hit multi-year lows against the euro, Australian dollar and .
