The Japanese currency jumped 5 yen against the dollar, after a new 34-year low reached earlier Monday, with traders citing an intervention by Japanese authorities to buy yen, for the first time in 18 months.
The size of the move and trading volatility throughout the day for the yen kicked off a busy week for traders, with the US Federal Reserve’s two-day meeting wrapping up on Wednesday , the US jobs report on Friday, and European inflation data throughout the week, starting with Germany and Spain on Monday.
The dollar fell as low as 154.4 yen in several rapid moves that took it away from an intraday high of 160.245, its highest level since 1990, sparking speculation about Bank of Japan intervention.
The greenback was last at 156.01 yen, down 1.47%. Trade in Asia was weaker than usual due to Japan’s Golden Week holiday. The dollar also saw another significant decline shortly after midday, dropping from 156.495 to 155.05 in a span of six minutes.
“That’s why they chose to do it relatively early in the Asian market, they can circulate it more,” said Joseph Trevisani, senior analyst at FX Street in New York.
Masato Kanda, Japan’s top currency diplomat, declined to comment when asked whether authorities had intervened, although traders said they had and the Wall Street Journal said Japanese authorities had intervened, citing people familiar with the matter.
Markets had expected Japan to step in to support the yen, whose currency has fallen more than 10% against the dollar this year.
“When a central bank starts to intervene, it puts traders under scrutiny. This causes them to rethink their position size,” said Nate Thooft, chief investment officer and senior portfolio manager, multi-asset solutions team, at Manulife Investment Management, in Boston.
“The mere fact that they are stepping in now probably gives pause to market makers and traders who were favoring a weaker yen and who may thus reduce their risk exposure and/or take some chips off the table because they were right…it helps the BOJ achieve its goals.”
The Commodity Futures Trading Commission’s weekly report on trader commitments showed that non-commercial traders, a category that includes speculative trading and hedge funds, increased their short positions in the yen to 179,919 contracts during the week which ended on April 23, the most important since 2007.
The yen weakened sharply on Friday after the Bank of Japan kept policy settings unchanged and gave little indication of reducing its purchases of Japanese government bonds.
The Japanese central bank’s alleged intervention comes ahead of the Fed’s May 1 policy announcement, with markets widely expecting the U.S. central bank to keep interest rates unchanged, according to FedWatch. of the CME, given the strength of the jobs market and recent inflation data which has been higher than expected.
Investors have had to continually lower their expectations for the timing and magnitude of U.S. interest rate cuts this year, and differences between the policy positions of the Bank of Japan and the Fed have fueled the weakness of the yen.
“With this interest differential between the BoJ and the Fed and the obvious reluctance of the BoJ to do anything, to change its decades-old policy, with essentially zero interest rates, it is difficult to create momentum towards a strengthening of the Japanese yen in the other direction,” Trevisani said.
Additionally, other major central banks, such as the European Central Bank and the Bank of England, are seen as more likely to start cutting rates in the near future.
The dollar index fell 0.31% to 105.63, and the euro rose 0.25% to $1.0719. The British pound strengthened 0.54% to $1.2558.
This week’s European inflation data will help determine the ECB’s interest rate trajectory. Spain’s European Union harmonized inflation rate stood at 3.4% in the 12 months ending in April, up from 3.3%. Data from Germany showed that inflation rose slightly in April due to higher food prices and a smaller fall in energy prices.
