The yen climbed more than 2% against the dollar in the wake of a softer-than-expected reading of US inflation, prompting a new round of market chatter about whether Japan was intervening in the market to support its currency.
Japan’s currency abruptly rallied to 157.44 per US dollar in the minutes following news that core consumer prices rose the least in almost three years.
The yen touched its weakest since 1986 just last week, fuelling a new wave of jawboning from Japanese authorities about their willingness to act to bolster the currency if necessary.
That’s made market participants nervy about any sudden move in the yen. While the currency dropped more than 3 yen in short order, traders were divided on whether the speedy rally was a result of options trades being closed out, or a sign that Japan was in the market.
“It’s possible, but not likely” the move was the result of an intervention, said Win Thin, global head of markets strategy at Brown Brothers Harriman. Recent interventions have led to more dramatic moves, he said.
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Over the past year, the yen has slumped, making it the worst-performing G10 currency. Sentiment has been so poor that bearish wagers have dominated the market even after the Bank of Japan raised its short-term policy rate for the first time since 2007 in March.
The Ministry of Finance bought ¥9.8 trillion to stem losses in two interventions that appear to have taken place on April 29 and May 1. Finance Minister Shunichi Suzuki has said he’s deeply concerned about the impact of rapid and one-sided currency moves on the economy.
“The yen dropped dramatically and looks very good timing, but in my opinion just cancellation of JPY short position,” said Takafumi Onodera, who’s in charge of sales and trading at Mitsubishi UFJ Trust & Banking Corp. in New York. “If it were intervention, it should go to around 156 at least.”
Chart: Bloomberg
