The yen slumped past levels that have seen Japan wade into the currency market in the past, putting traders on guard for verbal intervention from officials Thursday amid a persistently wide interest-rate gap with the US.
The currency traded around 146.30 versus the dollar at 7:30 a.m. in Tokyo after weakening for eight straight days. It touched 146.41 on Wednesday, putting it into a zone that saw authorities come in to bolster the currency last year for the first time since 1998.
The latest moves came as Treasury yields climbed after minutes from the Federal Reserve’s last meeting suggested policy makers may continue raising interest rates to combat inflation. The yen has tumbled about 5% in the past month as US rates push higher, the dollar strengthens broadly and concern about China’s economic woes spillover.
Finance Minister Shunichi Suzuki said Tuesday that he’s watching market trends with a “sense of urgency.” Yet so far traders and government officials appear to see the speed of movements as more important triggers than specific levels. That view was echoed by Jane Foley, a senior foreign-exchange strategist at Rabobank.
“It is likely that the pace of any further move higher in USD/JPY will have a bearing on whether the Ministry of Finance would take action before 150,” Foley said.
The dollar-yen pair could hit 147-148, given the current momentum and China’s ongoing struggles to boost its economy, according to Bipan Rai, CIBC’s global head of foreign-exchange strategy. Intervention is a risk, but it’s impact will be transient and only policy changes, including shift away from the yield control, can bring lasting upside to the yen, he said.
“The yen is caught in the weak yuan orbit,” said Steven Englander, head of global G-10 FX research and North America strategy for Standard Chartered Bank. “US yields running higher is the big driver.”
Bank of Japan Governor Kazuo Ueda surprised many investors last month in a post-policy meeting press conference by saying that foreign exchange volatility had been a factor in the BOJ’s decision to adjust its monetary program. The policy tweak effectively lifts the cap on 10-year bond yields to 1% from 0.5%.
While the intervention debate grows, the options market signals traders see little chance of intervention or that they hold the view that Japan entering the market wouldn’t be too disruptive. One-week implied volatility in dollar-yen, a gauge of expected movement in the currency pair over the period, ticked higher on the day but remains near this year’s lows.
Even if the Ministry of Finance decides to intervene in the market, which it does by directing the BOJ to buy and sell currencies, there is no guarantee that it would stem the slide.
After initially rallying following intervention in September last year, the yen weakened further, as far as 151.95 per dollar, which spurred two more interventions in October before the trend started to change. The three interventions cost about 9 trillion yen, or about $62 billion at the current exchange rate.
“That the dollar is up against all currencies in the last month, also means the yen is less being singled out for weakness, and is another reason for the BOJ to not be too hasty in intervening,” said Alan Ruskin, chief international strategist at Deutsche Bank AG.
--With assistance from George Lei.
(Updates with market moves)
