From Intervention to Carry Trade Revival
The Japanese yen has experienced a dramatic swing in fortunes over the past month, driven by a combination of factors including central bank intervention, hawkish policy shifts, and global market volatility.
In early July, the yen languished near 38-year lows against the dollar, prompting the Bank of Japan to intervene in the currency market for the first time since 1998. This intervention, coupled with a hawkish shift from the central bank, led investors to unwind popular carry trades, where they borrowed yen at low rates to invest in higher-yielding dollar assets.
However, recent comments from Bank of Japan Deputy Governor Shinichi Uchida suggesting that the central bank won't raise interest rates while markets are unstable have revived the carry trade. This has caused the yen to weaken again, falling over 1.5% against the dollar to 146.70.
The yen's volatility has been exacerbated by a weaker-than-expected U.S. jobs report and disappointing earnings from major tech firms, which have sparked fears of a recession in the U.S. and a global sell-off in riskier assets.
While some analysts believe the Bank of Japan's comments are an attempt to stabilize the market, others expect the Federal Reserve to take a more measured approach to interest rate cuts in the coming months.
Meanwhile, the Australian dollar has rebounded after the central bank ruled out the possibility of an interest rate cut this year, while the New Zealand dollar has surged on the back of strong jobs data.