- Yen surges, dollar and Treasury yields fall after CPI report
- US inflation data ‘has BOJ breathing a sigh of relief’: Monex
Japan’s currency climbed as much as 1.1% to 154.76 per dollar in New York trading Wednesday before paring gains. The currency has whipsawed in recent weeks, weakening beyond 160 per dollar for the first time since 1990 in late April before sharp rebounds after two rounds of suspected intervention by authorities.
The wide moat between Japan’s ultra-low and higher US borrowing rates has been pressuring the yen. Wednesday’s rally in the currency unfolded against a weakening greenback and tumbling US Treasury yields following the release of an April US CPI report.
Traders boosted their bets that the Federal Reserve will cut interest rates after the data, with swaps pricing now suggesting more than a 80% chance of a quarter-point rate reduction by the September Fed meeting.
The dollar-yen pair “is by far the most sensitive USD-cross to moves in the US fixed-income markets and could move the most if the US rates investors do bring forward Fed rate cuts,” said Valentin Marinov, head of G-10 foreign-exchange research and strategy at Credit Agricole.
The data revealed that the so-called core measure of inflation — which excludes volatile food and energy costs — rose 0.3% from March, while year-over-year core price growth eased to 3.6%.
Over the past year, the yen has slumped about 12%, making it the worst performing Group-of-10 currency. Sentiment was so poor that bearish wagers dominated the market even after the Bank of Japan raised the short-term policy rate for the first time since 2007 in March.
To stem losses, Japan is suspected to have bought the yen twice, in late April and then again in early May, spending about ¥9 trillion ($57.5 billion) in total, according to Bloomberg calculations. The nation’s top currency official, Masato Kanda, has declined to comment on whether authorities had intervened.
“CPI definitely has BOJ breathing a sigh of relief,” said Helen Given, a foreign-exchange trader at Monex. Still she added, “until the Fed starts cutting, USD/JPY has a ceiling of strength at the 150 level — the interest rate gap is still quite large.”
Despite Japan’s recent efforts, market watchers argue the yen continues to face long-term pressures. Former US Treasury Secretary Lawrence Summers said that currency interventions are ineffective at shifting exchange rates, even at the large magnitude that Japan is thought to have deployed.
