(Updated with analyst comments)
by Rae Wee and Vidya Ranganathan
The yen jumped against the dollar on Monday, after having weakened significantly at the start of the session, with operators citing intervention to support the currency from the Japanese government.
The dollar fell to 156.27 yen at 0538 GMT, from a high of 160.245 hit earlier in the session.
Japanese banks were selling dollars against yen, according to market sources.
“This rebound has all the characteristics of an intervention by the Bank of Japan and what better time to do it than a Japanese public holiday? Liquidity is weaker and the intervention of the Bank of Japan more effective”, believes Tony Sycamore, analyst at IG. April 29 is a public holiday in Japan.
“I will not comment immediately,” Deputy Finance Minister responsible for foreign affairs Masato Kanda said on Monday.
Markets are on the lookout for any sign of intervention to support the yen, which lost 11% in 2024 against the dollar and is regularly hitting 34-year lows.
RATE GAP
“We will only know later whether this is indeed an intervention,” says Mahjabeen Zaman, head of foreign exchange research at ANZ.
“In previous interventions, we saw that the immediate reaction of the yen was to move a few yen, but then it returned to levels consistent with fundamentals, and I think the main driver of the pair is the differential of performance between the United States and Japan.
In fact, the spread between the yield of American and Japanese sovereigns at 10 remains high, at 375 basis points, and continues to put pressure on the currency.
Such a large gap “may suggest that the intervention may not be as effective” as hoped, according to Christopher Wong, a strategist at OCBC.
“Interventions on foreign exchange accompanied by declarations from the central bank on the urgency of normalizing its monetary policy could be more effective,” adds the strategist.
Japan’s central bank only ended its negative rates in 2024, as central banks around the world raised rates to significant levels to stem the tide of inflation.
“Today’s movement, if it was indeed triggered by intervention by the authorities, could happen again,” said Nicholas Chia, Asia strategist at Standard Chartered Bank.
“If the pair reaches 160 yen to the dollar again, the Finance Ministry could intervene again. In a sense, the 160 level represents a new red line for the authorities.”
The Japanese government intervened to support its currency three times in 2022, when it had exceeded 152 yen per dollar.
When the government decides to intervene, the Ministry of Finance issues a market intervention order, implemented by the central bank which draws on foreign exchange reserves to buy yen.
(Reporting by Reuters Markets team, French version Corentin Chappron, editing by Kate Entringer)
