By Rae Wee
SINGAPORE, May 4 (Reuters) – A brief jolt higher in the yen on Monday sparked speculation that Japan had again sought to defend its sinking currency, though analysts say pressure is likely to persist even as the risk of further official intervention hangs over the market.
The yen has languished for weeks near record lows in real terms, with policymakers cautioning that its weakness is stoking inflation and squeezing living costs.
Those warnings appeared to turn into action last week, when sources told Reuters authorities had bought yen; money market data pointed to roughly $35 billion in spending behind a sudden 3% rally on Thursday.
Monday’s move was more modest, briefly pushing the yen from around 157.2 per dollar to just below 156 before quickly unwinding, leaving it near 157. Markets viewed the jump as a warning shot to speculators betting against the currency, though its swift reversal underlined how difficult it will be for authorities to counter years of decline through intervention alone.
Japan’s Ministry of Finance (MOF) was not immediately available for comment on the market moves when contacted by Reuters on a public holiday in Japan.
Finance Minister Satsuki Katayama, speaking to reporters in Uzbekistan, said she had no comment when asked whether authorities had intervened, according to Bloomberg.
“The late move in dollar/yen could reflect either a small, calibrated operation by the authorities or simply market moves amplified by Golden Week’s thin liquidity,” said Masahiko Loo, senior fixed income strategist at State Street Investment Management.
“Either way, the intent appears to be about keeping markets alert rather than deploying maximum firepower,” he said.
“Ultimately, however, intervention only buys time,” with interest rate moves necessary to really lift it.
HARD FOR INTERVENTION TO REVERSE YEN DECLINE
The yen has been under pressure for years, first from Japan’s ultra-low interest rates, then on fears Prime Minister Sanae Takaichi plans to borrow and spend to ramp up growth, and now by its exposure to the global oil shock.
Speculators have leaned hard into that weakness. Net short positions in the yen touched a nearly two-year high last week, the most recent CFTC data showed, with bears emboldened when the Bank of Japan left interest rates on hold a week ago.
It will not be clear until later this week, when the figures are next published, whether those bets have retreated and how prolonged the tussle between speculators and authorities may be.
“A common pattern has been that when speculative (yen) short positions fail to unwind following intervention, authorities tend to move toward consecutive interventions relatively quickly,” said Barclays analysts in a note.
Still, many analysts point to the global backdrop and see little in the recent moves by Tokyo to alter the broader outlook: Japan’s interest rates remain below inflation, and markets no longer expect U.S. rate cuts this year.
“The intervention does not affect our medium-term yen-bearish view,” said analysts at J.P. Morgan in a client note, who see the dollar/yen rate at 164 at the end of the year.
“For currencies like the JPY – freely traded under a floating exchange-rate regime and with a large market size – it is difficult for FX intervention to halt or reverse a fundamentals-driven trend.”
Bank of America currency strategist Oliver Levingston forecasts dollar/yen more or less steady, at 157, at year’s end.
“A BOJ hike at the June meeting would help at the margin, but would still leave policy behind the curve, limiting its effectiveness for supporting JPY.”
(Reporting by Rae Wee, Ankur Banerjee and Gregor Stuart Hunter in Singapore and Vidya Ranganathan in London; Editing by Tom Westbrook and Shri Navaratnam)
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