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HomeLatestJapanese Yen Surges Against Dollar Amid Suspected Intervention
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Japanese Yen Surges Against Dollar Amid Suspected Intervention

The Japanese yen witnessed a sudden surge against the dollar on Monday, as traders speculated about potential yen-buying intervention by Japanese authorities. This move is believed to be an attempt to halt the yen’s persistent decline to levels not seen in over three decades.

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From a low of 160.245 earlier in the day, the yen sharply rose to 155.01 per dollar, with sources indicating that Japanese banks were actively selling dollars for yen. At the latest, the dollar was trading at 157.10 yen.

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Traders had been anticipating action from Tokyo for weeks, aiming to support a currency that has depreciated by 11% against the dollar since the year began. Despite the Bank of Japan’s recent exit from negative interest rates, the yen continued its downward trajectory, prompting concerns among policymakers.

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Masato Kanda, Japan’s top currency diplomat, declined to comment on the suspected intervention. Similarly, the Ministry of Finance refrained from immediate comment, as the country’s markets were closed for a holiday on Monday.

Analysts noted that the intervention appeared strategically timed, taking advantage of lower liquidity in USD/JPY due to the Japanese public holiday, potentially maximizing the impact of the intervention.

The yen’s prolonged weakening has posed challenges for policymakers, leading to increased import costs, inflationary pressures, and household financial strains. While beneficial for Japanese exporters, a weaker yen presents broader economic implications.

The suspected intervention comes amid market disappointment over the Bank of Japan’s decision to maintain its policy settings last week, coupled with limited indications of reducing Japanese government bond purchases.

The widening gap between U.S. and Japanese government bond yields, currently at about 375 basis points, incentivizes investors to favor the dollar for its higher yield, contributing to the yen’s decline.

Market observers suggest that intervention effectiveness may be limited given the significant yield gap between U.S. and Japanese bonds. They propose a combined approach involving policy normalization by the Bank of Japan and currency intervention by the Ministry of Finance.

This intervention coincides with the upcoming Federal Reserve policy review, heightening market sensitivity to potential changes in interest rates.

To support the yen, Japanese authorities may utilize the country’s foreign reserves to sell dollars for yen, a process typically initiated by the finance minister and executed by the Bank of Japan.

While today’s intervention may not be a standalone effort, analysts anticipate further action from the Ministry of Finance should the USD/JPY pair approach the 160-level threshold, indicating a new line in the sand for currency authorities.

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