Yen jumps against the dollar on suspicion of intervention

By Rae Wee and Vidya Ranganathan

(Reuters) – The yen surged against the dollar on Monday, with traders citing yen-buying intervention by Japanese authorities to try to prop up a currency that is languishing at levels last seen more than three decades ago. .

The dollar fell sharply to 155.01 yen from a peak of 160.245 earlier in the day. Banking sources said Japanese banks had sold dollars for yen.

For weeks, investors have been awaiting any sign of action from Tokyo to support a currency that has fallen 11% against the dollar so far this year. The yen fell to 34-year lows despite the central bank ending negative interest rates in a historic move last month.

Currency traders are betting that despite the change, Japanese interest rates will remain low for some time, in contrast to relatively high borrowing costs in the United States.

Japan’s top foreign exchange diplomat, Masato Kanda, declined to comment when asked whether authorities had made any intervention.

“I will not comment now,” Kanda, deputy finance minister for international affairs, told reporters.

Japan’s Finance Ministry was not immediately available for comment as the country’s markets are closed for a public holiday on Monday.

“Today’s move, if it represents an intervention by the authorities, is unlikely to be a one-size-fits-all measure,” said Nicholas Chia, macro strategist at Standard Chartered Bank.

“We can probably expect more to come from the ministry if USD-JPY reaches 160 again. In some ways, the 160 level represents the pain threshold… for policymakers.”

A weaker yen is good for Japanese exporters, but it is a headache for authorities as it raises import costs, increases inflationary pressures and puts pressure on households.

Bank of Japan Governor Kazuo Ueda said at a post-meeting news conference last week that monetary policy does not directly target the exchange rate, although exchange rate volatility can have a significant economic impact.

The yen moved about 3.5 yen between 158.445 and 154.97 on Friday as traders voiced their disappointment after the Bank of Japan maintained monetary policy and offered few clues about reducing its currency purchases. Japanese government bonds – a move that could help put a floor under the yen.

The yen has been under pressure as US interest rates have risen and Japanese interest rates have remained near zero, causing money to move out of the yen and into higher-yielding assets.

The difference between US and Japanese government bond yields for the 10-year term is about 375 basis points.

“Whether it is in fact an intervention we will only know later,” said Mahjabeen Zaman, head of currency research at ANZ in Sydney.

“In previous interventions we have seen that the yen’s immediate response is that it moves a few yen, but then it trades back in line with fundamentals and I think the biggest driver of dollar/yen is the yield differentials between the US and the Japan.”

(Additional reporting by Ankur Banerjee, Stella Qiu, Tom Westbrook, Takaya Yamaguchi and Leika Kihara)