Yen intervention suspected as JPY surges vs. USD

JPY claws back against USD, yen intervention suspected

The Japanese yen soared against the U.S. dollar on Monday, following suspected intervention by the country’s banks, marking the first such action in 18 months after the currency touched new 34-year lows earlier in the day.

This dramatic move sets the stage for a potentially hectic week in the forex markets, with a Federal Reserve meeting concluding on Wednesday, U.S. employment figures due Friday, and European inflation numbers from Germany and Spain.

The USD to JPY rate saw sharp declines to 154.4 yen after peaking at 160.245, its highest level since 1990, in early trading sessions across Asia and Europe. As per Reuters, Japan's chief currency diplomat Masato Kanda refused to comment when asked if authorities had carried out a yen intervention, although traders had said the moves looked suspiciously like one.

By 13:30 GMT, the dollar was trading at 156.50 yen, down 1.16% on the day. Market activity in Asia was lighter than usual due to Japan's Golden Week holiday.

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Analyst say currency moves “look like” yen intervention

James Malcolm, head of FX strategy at UBS, told Reuters:  

"It looks like intervention but it looks like less intervention than in the two episodes in 2022 because the market is super thin today, in Japan time especially”.

"It is quite likely that they will continue to intervene," he said, adding that in recent decades Japanese authorities had tended to step up the amount of intervention in subsequent moves, and vary the times of day in which they intervened.

Neil Wilson, Chief Market Analyst at Markets.com, commented on the Japanese yen dynamics in his morning note on Monday: 
 

“The Bank of Japan’s dovishness in keeping rates unchanged late last week was an open invitation for Japanese yen sellers and the pace quickened as Asian markets reopened late last night; though notably Japan is shut for a holiday.  The authorities have been reluctant to use their dry powder against the tide of rising US bond yields — but this has the look and feel of a yen intervention.”

Markets had been wary of a potential yen intervention in the past several months, as JPY had weakened more than 10% against the dollar this year. Data from the Commodity Futures Trading Commission cited by Reuters on Monday revealed a significant increase in short positions on the yen, reaching their highest since 2007.

Yen volatility carries over from last week, Fed meeting in view

The yen's volatility continued from the previous Friday, moving nearly 3.5 yen after the Bank of Japan opted to stick to its current monetary policy and provided little indication of a reduction in Japanese government bond (JGB) purchases — a potential stabilizing factor for the currency.

Japan’s suspected yen intervention comes days ahead of the U.S. Federal Reserve's policy review on May 1, with markets now expecting the Fed to maintain its current interest rate steady between 5.25% and 5.5%.  

Investors are now only confident of a single interest rate cut projected for November, based on the latest U.S. inflation data and market sentiment measured by the CME's FedWatch tool.

Upcoming U.S. non-farm payroll data will further influence expectations for U.S. interest rates later this year.

Expectations of delayed Fed cuts have caused the dollar to gain against most currencies in recent weeks, with other major central banks such as the European Central Bank and Bank of England set to enact more agressive cuts this year.

The U.S. dollar index (DXY), which measures the strength of the greenback against six major peers, was down 0.05% at 105.88 in early trading on Monday.

Despite recent lows, the euro and pound showed signs of recovery, with the euro rising to $1.0718, up 0.24%, and the pound increasing to $1.25280, up 0.28%.

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