The decline in the Japanese yen increased expectations for intervention
The yen fell to critically low levels against the dollar and the expectation of “intervention in the exchange rate” increased in the markets.
While the Bank of Japan (BOJ) was preparing to announce its interest rate decision on Friday, the country’s currency, the yen, fell to critically low levels against the dollar and the expectation of “exchange rate intervention” increased in the markets.
Dollar/yen tested above 155.5 level for the first time in more than 34 years. According to data from the Depository Trust & Clearing Corporation, there was an increase in demand for contracts to sell the yen against both the dollar and the euro on Wednesday. In addition, $300 million worth of purchases were made in 1-month options that foresee sales in yen if dollar/yen reaches 156.
While all these developments put pressure on the yen, all eyes turned to the statements to be made by the officials of the BOJ, which ended the negative interest rate application last month and is expected to remain on hold this month. “The risk of intervention remains high regardless of its level,” said Win Thin, head of global market strategy at Brown Brothers Harriman.
InTouch Capital Markets Ltd. Senior Foreign Exchange analyst Piotr Matys also commented, “A surprise interest rate increase would be much more logical than foreign exchange intervention.” “The most effective way to stabilize a battered currency is to surprise the market with a rate hike,” Matys said, although he saw this as a very low-probability scenario.
The Japanese government stated that it was ready to intervene
Finance Minister Suzuki Shunichi, in his parliamentary speech, signaled that the government would “take appropriate action” against the depreciation of the yen.
Minister Suzuki said, “We are closely monitoring market developments. Based on this, there is no change in our determination to respond appropriately.” he said.
Chief Cabinet Secretary Hayashi Yoshimasa said currency movements “should be stable” to reflect economic fundamentals. “We are of the opinion that excessive fluctuations are not desired. The government will closely monitor market developments and take all necessary steps,” Hayashi said. said.