Title: USD/JPY: Japanese Yen Rebounds from 10-Month Low Amid Intervention Speculation
By CurrencyLive.com – Original article by Ellie Allen
Rewritten and expanded for clarity and detail
The Japanese yen showed a strong recovery on speculation that Japanese authorities might intervene in the currency markets to support the yen. This rebound follows the yen touching a 10-month low against the US dollar, driven by the wide interest rate divergence between the United States and Japan. With markets increasingly concerned about potential currency manipulation or support efforts from Japan’s Ministry of Finance or the Bank of Japan, traders are now watching closely for signs of concerted government action.
Market Background: Yen Falls to a 10-Month Low
– On September 11, 2023, USD/JPY climbed to around 147.87, the highest level since November 2022.
– The uptick in USD/JPY was primarily driven by the Federal Reserve’s hawkish stance on interest rates.
– In contrast, the Bank of Japan (BoJ) has maintained ultra-loose monetary policy, resulting in a growing yield differential between Japanese government bonds and US Treasuries.
The widening yield gulf continued to pressure the yen, making it less attractive to investors compared to the US dollar and contributing to a build-up of short positions on the Japanese currency.
However, as the yen approached psychological and political flashpoints—levels that have previously prompted government action—investors became wary of pushing the currency lower, prompting a sudden reversal.
Recovery on Intervention Fears
The yen reversed course on Tuesday, September 12, moving back from its lows. USD/JPY dropped roughly 1% at one point in the session, falling toward 146.50. Although no official statements were issued confirming any currency intervention, traders believe the price action was partially driven by fears that Japanese policymakers could act to support the yen.
– The Japanese Ministry of Finance has a history of intervening in currency markets, especially when moves are deemed excessively volatile or economically harmful.
– Finance Minister Shunichi Suzuki reiterated that the government is monitoring forex markets with a “high sense of urgency.”
– The BoJ also remains concerned about inflationary pressures and exchange rate volatility, adding to the possibility of intervention.
Last Year’s Precedent: Yen Intervention in 2022
Analysts are referencing last year’s intervention to gauge the probability of new action. In late 2022, when the dollar approached the 150 level against the yen, Japanese authorities stepped into the market to support their currency.
– In October 2022, Japan conducted its first direct intervention in over two decades when it bought yen and sold dollars after the currency depreciated past 145 per dollar.
– Additional rounds of intervention followed in the weeks ahead, with Japan spending an estimated $68 billion worth of reserves to stabilize the yen’s value.
Though market conditions have slightly changed since then, the underlying motivations remain similar: preventing sharp devaluations that can hurt consumers and businesses dependent on imports.
Why a Weaker Yen Matters for Japan
– A weaker yen increases the cost of imported goods, including energy and food, which exacerbates inflation for Japanese households and businesses.
– It erodes purchasing power, leading to potential political backlash against a government that appears passive in the face of currency depreciation.
– Several Japanese companies, especially those dependent on foreign raw materials or components, face higher costs as a result of a weaker yen.
– On the flip side, export-driven manufacturers may benefit from the yen’s decline, as their products become cheaper overseas.
While a gradually weakening yen can be economically beneficial to some sectors such as automobile exports, drastic and unpredictable currency swings typically generate uncertainty and hinder broader economic planning.
Central Banks Diverge: The Root of the Currency Pressure
The contrast between the Federal Reserve’s tightening cycle and the BoJ’s dovish policy continues to define currency movements.
Fed Outlook:
– The Federal Reserve has raised interest rates to a 22-year high, with the
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