The Yen Surges Against the Dollar Amid Suspected Intervention
The Japanese yen experienced a sudden surge against the US dollar in early Asian trading on Thursday. While the exact cause remains unclear, many traders suspect another round of intervention by Japanese authorities to curb the currency's sharp decline.
The dollar's value plummeted from around 157.55 yen to precisely 153 yen, a move attributed by analysts and traders to dollar selling orchestrated by Japan's Ministry of Finance. This intervention aimed to support the yen, which has been languishing at 34-year lows.
The timing of the intervention is noteworthy, occurring during a quiet period for the currency pair after the US stock market closed and the Federal Reserve's monetary policy meeting concluded. This suggests a deliberate and calculated move by Japanese authorities.
The yen's weakness stems from the widening interest rate gap between the US and Japan. As US interest rates climb while Japan's remain near zero, investors are shifting funds out of yen and into higher-yielding assets. This trend has intensified since March, further weakening the yen.
While Japan's Ministry of Finance and the US Treasury declined to comment on the intervention, the yen's rapid reversal after its initial spike suggests the difficulty in arresting its decline. As of 0148 GMT, the yen had already lost more than half of its overnight gains, trading at 156.23 per dollar.
The widening gap between US and Japanese long-term government bond yields, currently at 376 basis points, has further contributed to the yen's weakness. This gap pushed the yen to its weakest level since April 1990 at 160.245 per dollar on Monday.
Despite the intervention, the yen remains down about 10% against the dollar this year. The Bank of Japan's cautious approach to further policy tightening after its first rate hike in March since 2007 also contributes to the yen's weakness.
Analysts believe that the Bank of Japan's efforts to counter these fundamental factors will likely have limited effect as long as the interest rate gap between the US and Japan remains significant. The market currently views the lower USD/JPY rate resulting from intervention as an opportunity to buy dips rather than a sign of a trend reversal. While the Bank of Japan possesses significant financial resources, it currently faces an uphill battle against the prevailing market forces.