In Tokyo, the yen strengthened significantly against the dollar, leading to suspicions of Japanese authorities' intervention to halt the currency's rapid slide. The dollar's sudden drop to 153 yen from around 157.55 yen raised questions, with traders and analysts attributing it to Japan's Ministry of Finance instructing dollar selling to bolster a currency that had reached 34-year lows.
During a quiet period in the currency pair, following the closure of the U.S. stock market and the conclusion of the Federal Reserve's monetary policy meeting, the dollar found itself under pressure due to Fed Chair Jerome Powell's indication of a leaning towards interest rate cuts, despite delayed timing caused by persistent inflation. The frequency of these interventions was underscored by Daisaku Ueno, chief FX strategist at Mitsubishi UFJ Morgan Stanley Securities, who highlighted Japan's consistent readiness to intervene at any time, underlining a final defense line of 160 yen per dollar set by officials.
This ongoing struggle to curb the yen's decline has been exacerbated by the widening gap between U.S. and Japanese interest rates, prompting a flight of capital from yen to higher-yielding assets. The yen's persistent weakening, now standing about 10% lower against the dollar for the year, reflects market sentiments shifting away from near-term Fed rate cuts, while the Bank of Japan maintains a cautious approach to further policy tightening. Despite bolstering interventions and firepower at their disposal, Japanese authorities face challenges as they swim against the tide of fundamental differences in U.S. and Japanese rates.