Title: USD/JPY Pulls Back from 10-Month High as Yen Recovers on Intervention Concerns
By: Ellie Allen (originally published on CurrencyLive.com)
The Japanese yen managed to recover on Wednesday from a 10-month low against the US dollar, reversing some of its recent losses as the market grew increasingly wary of potential intervention by Japanese monetary authorities. The USD/JPY pair fell from levels above 147.95 to below 147.70, after briefly reaching its highest point since November.
The depreciation of the yen in recent months has been driven by diverging monetary policies between the Bank of Japan (BoJ) and its global counterparts, particularly the US Federal Reserve. However, fears of intervention by Japanese officials have introduced volatility into the market, making traders more cautious as the pair climbed to levels seen as increasingly sensitive in Tokyo.
Yen Weakness Sparks Intervention Concerns
– The Japanese yen has been sliding steadily for most of the year, with the USD/JPY exchange rate crossing into levels reminiscent of past intervention territory
– This depreciation has heightened speculation that the Japanese Ministry of Finance or the Bank of Japan could step in to stabilize the currency
– Investors recalled the events of late 2022, when Japanese authorities launched a rare and impactful intervention to support the yen after it plunged beyond 145 per dollar
On Tuesday, Japan’s top currency diplomat, Masato Kanda, warned that Japanese authorities are not ruling out any options regarding action on currency movements. His comments came shortly after the yen hit a 10-month low, intensifying suspicions that coordinated intervention might follow if further depreciation occurs.
Market participants interpreted Kanda’s statement as a verbal intervention designed to temper speculative activity without deploying direct action. However, many in the market believe that repeated comments like these act as a prelude to potential currency support measures.
The Federal Reserve’s Part in Weak Yen
– The US Federal Reserve has aggressively raised interest rates over the past year, bolstering the dollar’s attractiveness compared to lower-yielding currencies such as the yen
– Japan’s central bank, in contrast, has sustained a historically loose monetary policy, marked by negative interest rates and ongoing yield curve control
– This policy divergence has made the yen especially vulnerable to capital outflows and carry trades, where investors borrow in low-interest currencies to invest in higher-yield assets
As a result, the USD has remained strong while the yen struggled, even falling over 11 percent this year alone. The broader DXY dollar index also remains elevated, above the 104 mark, reflecting buoyant US Treasury yields and a resilient American economy.
Previous Interventions Are a Warning Sign
– In September 2022, the Japanese government intervened in currency markets for the first time since 1998, selling dollars to buy yen after its value plunged
– Further interventions occurred in October 2022, once the USD/JPY surpassed 150
– At the height of the intervention period, the currency pair dropped over 5 yen in mere hours, showcasing the shock value and effectiveness of Tokyo’s market maneuvers
Traders are alert to the prospect of a repeat of these interventions. Although the BoJ has not signaled specific thresholds for action, analysts widely consider the 145-150 range to be in the “danger zone” where action is historically more likely.
Traders reposition themselves cautiously when USD/JPY trades above 147.50, amid rising suspicion that a test of the 150 resistance point might prompt decisive moves by Japanese authorities.
BoJ Policy Decision in Focus
Looking ahead, the market is keeping a close eye on the next Bank of Japan policy decision, which is scheduled for later this month. Although the BoJ has so far been reluctant to change its ultra-loose policy, pressure has been mounting domestically to acknowledge inflationary pressures and tighten monetary settings.
Key points market participants are watching include:
– Whether the BoJ will revise its economic outlook
– Any signaling of
Explore this further here: USD/JPY trading.