Japanese yen on Tuesday strengthened against the dollar as the dollar surpassed a critical level of 150 yen for the first time since October 2022. This led many in the market to speculate that Japanese monetary officials might have intervened to prevent the yen from declining further.
Japanese Finance Minister Shunichi Suzuki stated on Tuesday that authorities were closely monitoring the currency market and were prepared to take action if necessary. However, he also emphasized that any decision regarding currency market intervention would depend on market volatility rather than specific yen levels.
A high-ranking official from Japan’s Ministry of Finance chose not to provide any statements regarding whether Japan had taken action in the foreign exchange markets. There was no response to inquiries for comments from the New York Federal Reserve.
The dollar’s value dropped to as low as 147.30 yen in comparison to the Japanese currency, following a recent peak of 150.165, which marked its highest point in a year.
The dollar’s decline on Tuesday to its lowest point in three weeks against the yen was quite notable.
Colin Asher, a senior economist at Mizuho in London, commented on the situation, saying, “It looks like intervention though there isn’t any official confirmation and the backdrop is not fully convincing. If you compare the rise in the dollar/yen this year to last year, you can say a few things: it’s slower.
In his conclusion, he said, “The finance minister has been quite explicit that he has been looking more at volatility and the speed of any moves rather than levels…so it could just be people expecting intervention and then reacting to what they believed to be intervention.”
Asher also pointed out that it’s unusual for a currency to experience such a rapid and significant shift in such a short period without a specific reason. He suggested, “Such a move is usually intervention.
The yen’s strength had a ripple effect on other currencies, following the dollar’s decline. The euro, for example, hit a two-month low against the yen at 154.39 yen and was currently down 0.7% at 155.99 yen.
Similarly, the British pound also saw a drop against the yen, reaching a two-month low. It was down 0.8% at 179.96 yen.
Some experts in the market, however, didn’t believe that there was any intervention happening. Marc Chandler, chief market strategist at Bannockburn Global Forex in New York, pointed out, “The dollar did get above 150 on the announcement of the U.S. Labor Department’s latest Job Openings and Labor Turnover Survey, or JOLTS report.”
The number of job openings in the United States, which indicates the demand for workers, increased by 690,000 to reach 9.61 million at the end of August. Additionally, the data for July was adjusted upwards, showing 8.92 million job openings instead of the previously reported 8.83 million.
“Factors Behind the Dollar-Yen Exchange Rate Fluctuations”
Regarding the recent fluctuations in the dollar-yen exchange rate, some believe it’s due to intervention, but others disagree. According to Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets in London, the breakthrough of the 150 threshold in the exchange rate was influenced by higher yields on both U.S. Treasuries and Japanese government bonds. He also noted that Japan had intervened in the past, but it typically occurred outside of U.S. trading hours.
“The dollar-yen rate crossed 150 because of the ongoing trend in U.S. Treasury (UST) and Japanese government bonds (JGB). The UST-JGB situation, combined with better-than-expected JOLTS data, possibly led authorities to check prices, triggering stop orders,” explained one of our traders.
The dollar gained strength due to robust U.S. manufacturing data and repeated statements from Federal Reserve officials about the need for continued restrictive monetary policy. Moreover, an agreement to prevent a U.S. government shutdown over the weekend pushed benchmark Treasury yields to a 16-year high of 4.706% on Tuesday. This increase in real interest rates, factoring in inflation, contributed to the dollar’s rise.
“The dollar index, which compares the value of the dollar to six other major currencies, rose 0.13% to 107.13, its highest level since November.”
“After the Reserve Bank of Australia (RBA) decided to keep interest rates unchanged, the Australian dollar fell to an 11-month low. It is currently down by 1% at US$0.6299.”
“The dollar gained 0.5% against the Swiss franc, reaching 0.9221 francs. This increase came as Swiss inflation rates were slightly lower than expected. The dollar previously hit a six-month high of 0.9244 francs.”
