The yen fell in Tokyo trading Thursday as traders mulled Japan's strongest warning that it would act to stop the currency's slide.
The Japanese currency fell by 0.2% to around 143.40 per dollar after rallying from just below the closely watched 145 level Wednesday on signs that the Bank of Japan was preparing an intervention.
Signals from the options market indicated that traders were taking the threat of action seriously. One month risk-reversals for dollar-yen, a gauge of expected direction for the pair over that time frame, fell to the lowest since August.
On Wednesday, the BOJ conducted a so-called rate check in the market -- asking for an indicative price at which it could buy yen -- a move widely seen as a precursor to intervention. Both the finance minister and the nation's top currency official warned that all options were on the table. The likelihood of intervention operations looks low, but the escalation in verbal intervention over the past 24 hours combined with the reported rate checks should raise the odds priced into markets, said Karen Fishman, Goldman Sachs Group Inc. strategist. The risk could increase further as the dollar-yen hits fresh highs, particularly if it is at a relatively rapid pace and not accompanied by broad dollar strength. She said that the odds of a successful and sustained intervention in Japan are even lower without a broader shift in Japan's monetary policy framework.
The Japanese authorities have been stepping up verbal warnings with the yen down almost 20% against the dollar, but these have failed to turn the tide. The BOJ resolutely kept rock-bottom rates to bolster the economy, while the Federal Reserve hikes, widening the policy differential between the two countries.
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