Yen swings as traders speculate about third intervention

The yen swung against the US dollar on Monday as traders grappled with signs of a third round of currency intervention by Japanese authorities and analysts warned that further action risked stoking volatility.

After starting the morning in Japan at around ¥149.71 per US dollar, the yen exploded to reach ¥145.56 at 8:44am in the space of a few minutes. By Monday afternoon, the yen was back at the level before the morning surge began.

The sharp moves occurred shortly after Shunichi Suzuki, the finance minister, emphasised Japan’s resolve to curb the yen’s volatility as the currency hovered around a 32-year-low.

“We are robustly confronting market speculators,” Suzuki told reporters in a morning press huddle. “We will respond appropriately as needed since we cannot tolerate excessive moves in the foreign exchange market based on speculation.”

The yen is under significant pressure as the Bank of Japan sticks to its ultra-loose monetary policy in contrast with the central banks of most developed economies, which are raising rates to curb inflation.

Despite the yen’s appreciation, traders in Tokyo said it was still very difficult to tell whether Suzuki’s latest attempt at verbal intervention had been accompanied by another yen-buying operation.

Masato Kanda, the country’s top currency official, declined to comment on whether an intervention had been carried out on Monday.

On Friday, long after Japanese trading floors had closed and with dollar-yen trading in a less liquid part of the day, the Japanese authorities performed a yen-buying operation that dealers estimated at around $30bn. The action, which sent the yen surging from ¥151.94 on the dollar to ¥144.50, followed a $20bn intervention in September.

The decision to take action during lower-liquidity hours after Tokyo dealing rooms had closed was at odds with the Japanese government’s suggestion that it was intervening to lower market volatility, currency strategists said.

“The market is on high alert for intervention given uncertainty about exactly what the objective is at this point,” said Benjamin Shatil, foreign exchange strategist at JPMorgan. “Even as authorities have signalled their desire to smooth volatility, erratic or outsized intervention actually runs the risk of increasing market volatility.”

Strategists said that Friday’s intervention had caused particular frustration for Tokyo traders, who were not able to respond to the action outside normal market hours in Japan.

Kenta Tadaide, a senior foreign exchange strategist at Daiwa Securities, said many traders were assuming that the yen’s sharp movement on Monday was an intervention.

If it was another yen-buying operation, he said the authorities likely had to step in because the yen’s depreciation following Friday’s action was much faster than the currency’s gradual erasure of gains after September’s intervention.

“I think authorities probably thought that it would take another month for the yen to fall to ¥155,” Tadaide added, “but since it already came back to ¥150 by Monday morning, they may have thought an additional intervention would reduce volatility.”