According to media reports published on October 12, 2022, The yen fell back into prime intervention territory on Wednesday (Oct 12), as analysts debated whether its decline was extreme enough for Japanese authorities to prop up the currency as they did last month.
The currency fell to 146.39 per dollar, surpassing the level that prompted Japan’s first intervention to buy the yen since 1998. While Japan’s Finance Minister Shunichi Suzuki and foreign exchange chief Masato Kanda were in Washington DC to attend Group of 20 and other meetings, the government’s chief spokesperson Hirokazu Matsuno was asked about the yen on Wednesday at a regular press conference.
“Japanese authorities will continue to monitor moves in the foreign exchange market with a high sense of urgency,” said Matsuno, repeating recent remarks from senior officials on the yen. “Japanese authorities will take appropriate responses against excessive moves."
The yen has slumped to a 24-year low this year as traders focused on the widening yield gap between the US and Japan, with the US hiking rates aggressively and Japan keeping them at rock-bottom levels to boost a sluggish economy. That encourages investors to seek out the more attractive returns in dollar assets from money-market instruments to fixed-income securities compared to Japanese ones.
Traders will be looking at the 1998 high of 147.66 as the next key target, though strategists have said authorities won’t necessarily have a line in the sand at which they’ll intervene again, and are likely focusing on the speed of declines. The Ministry of Finance spent ¥2.84 trillion (US$19.6 billion or RM91 billion) in September to limit the yen’s losses.
“USD/JPY may top 146 briefly today (Wednesday), but there is so much tension that the duration time will be short,” said Yoshio Iguchi, the managing director of Traders Securities in Tokyo. “The chicken race will continue with people wanting to test the upside but at the same time scared of being countered by intervention.”
Policy pressure
Despite the efforts of authorities, the Bank of Japan’s (BOJ) easy monetary policy continued to weigh on the currency. Businesses have warned about the negative impact on the domestic economy, and households are bracing for a cost-of-living crisis should inflation take off.
Meanwhile, a sell-off of Treasuries this week has helped push the dollar higher, increasing the pressure.
“With Treasury yields seemingly heading back above 4% at 10-years, the dollar generally bid on risk aversion, and Japanese Prime Minister Kishida yesterday fully endorsingKuroda and BOJ policy, higher dollar-yen levels are readily justified,” said Ray Attrill, the head of foreign-exchange strategy at National Australia Bank Ltd. “But if we see a rapid move up from here as we are just now seeing, then we may see another burst of intervention.”
Still, evidence for the Japanese government’s reasoning behind stepping into the market last month looks less compelling at the moment. One-week historical volatility in the dollar-yen has fallen to its lowest since March, indicating that recent moves were far from extreme.
“Tokyo is unlikely to surrender so easily to the market, but the line of defence could be moved higher in response to the broad dollar uptrend,” said Alvin Tan, the head of Asian foreign-exchange strategy at Royal Bank of Canada in Singapore.
Markets are expecting the US Federal Reserve to continue with its most aggressive monetary policy tightening in decades, especially with recent data showing continued strength in the labour market. Thursday’s US inflation report is the next key catalyst for investors.
On the dollar-yen pair, “players probably want to challenge the upside while they can and may be seeing today as a good time before US consumer price index (CPI),” said Koji Fukaya, a fellow at Market Risk Advisory in Tokyo. “If USD/JPY rises after the CPI and there is no sign of intervention, they can still continue to sell the yen.”
