In the News

The yen weakened as much as 1.1% against the dollar to 156.28 in Asia trading, inching closer to levels before the possible intervention. Traders speculated Japan stepped in the currency market after the yen surged 3% within minutes from a level of around 157.58 per dollar to as strong as 153.04 in the final stretch of the US trading session.

The moves signal rising skepticism over the efficacy of Japan’s possible intervention, after the yen failed to hold all gains on Monday that were triggered by officials’ first suspected intervention since 2022. For local currency traders, the long weekend starting Friday won’t be much of a break as they stay on high alert for more action.

Japan’s finance ministry “likely intervened but couldn’t break 152, where investors used to be cautious,” said Shoki Omori, chief desk strategist at Mizuho Securities Co. Now that authorities are seen as having stepped in for a second time, “but gave the impression that they cannot stop the yen cheapening trend alone, markets participants will likely feel more comfortable to short yen.”

Japan’s top currency official Masato Kanda said Thursday he had nothing to say on whether the nation intervened when asked during the aftermath of the move. The comment appears to fit in with Tokyo’s strategy of trying to keep market players in the dark over its stance on taking action and keeping them wary.

“It would certainly appear to have the characteristics of an intervention,” said Nathan Thooft, global chief investment officer for the multi-asset solutions team and senior portfolio manager for Manulife Investment Management. “Repeated attempts certainly send a message to the market and while it may not fully hold, it should have some impact on preventing further meaningful weakness.”

The currency market has been on alert for months about potential intervention, with Japanese officials ratcheting up their rhetoric around the pace of the yen’s slide. On Monday, the currency erased losses and quickly gained almost 3% after touching a 34-year low.

For traders around the world, all signs pointed to one cause: Japan was tired of jawboning and had taken action to defend its currency.

While officials declined to comment on any intervention, a Bloomberg analysis of the central bank’s current account suggests the nation probably spent about ¥5.5 trillion ($34.8 billion) to support the currency on Monday. Markets won’t know for sure until official figures are published on the last day of May, showing whether Japan bought or sold yen this week.

Uphill Battle

Policymakers will need to spend a lot of money to meaningfully boost the yen. In addition, the gulf between Japan’s ultra-easy monetary policy — emphasized by the Bank of Japan’s recent decision to keep monetary policy unchanged at its April meeting — has made its currency particularly susceptible to losses.

Japan’s massive levels of debt — equivalent to more than 250% of the nation’s economy — makes narrowing that gap difficult, even at rates more than 500 basis points below the Fed’s.

Japan faces “an uphill battle to sustainably strengthen the yen given strong fundamentals such as wide interest rate differentials between the US and Japan and healthy risk appetite,” Kristina Clifton, senior currency strategist at Commonwealth Bank of Australia, wrote in note.

While some past cases of extreme moves in the yen have been attributed to algorithmic trading, the combination of the spike at the end of the trading day when liquidity is usually thinner could have provided an opportune moment for Japanese authorities to act.

“Illiquid conditions close to end of day provided a good environment for another move to be effective,” said Helen Given, a foreign-exchange trader at Monex.

If officials did intervene, they may have decided to act preemptively out of concerns over potential sharp moves during a looming four-day break in Japan and a market holiday in London on Monday.

Strong Dollar

Japan is not alone in struggling to address weakness in its currency as persistently-high US interest rates and the strong dollar reverberate through markets around the world. Last month, the US, Japan and South Korea made a trilateral statement on the recent sharp currency moves. The US Treasury didn’t immediately respond to a request for comment on Wednesday.

Earlier on Wednesday, the US Federal Reserve held interest-rates steady, with Chair Jerome Powell indicating that the central bank was unlikely to cut any time soon.

“After Powell’s speech, US interest rates and the dollar went down but the yen didn’t move much, so Japanese authorities might have tried to do another intervention at the thin market around NY close,” said Takafumi Onodera, who’s in charge of sales and trading at Mitsubishi UFJ Trust & Banking Corp. in New York.

The dollar pared losses against other Group-of-10 currencies in the wake of Powell’s speech. The more-than-3% advance for the yen was the currency’s largest intraday gain since December 2023.

Still, with markets jumpy and looking for action, some said Wednesday the appearance of possible intervention could instead be the result of over-extended positioning.

“If you are into conspiracy theories, then you’d probably believe a nefarious plan on the yen was hatched,” said Martin Whetton, head of markets strategy at Westpac Banking Corp. in Sydney. “But the reality would be a holiday Monday, US rates pricing that had shifted so far to the hawkish pivot from Powell and FOMC, and a stretched yen ripe to be moved.”