The yen weakened as much as 1 percent against the dollar on Monday, August 10, touching 159.35 per dollar — the worst performance among Group-of-10 currencies — and erasing about half of the rally that followed the rare coordinated intervention by US and Japanese authorities at the end of July.
USD/JPY rose more than 150 pips during the session, breaking through 159.00 in US trading, according to the investingLive Americas market wrap. The move is a direct challenge to Japan's finance ministry and the US Treasury, whose joint operation has so far had limited success "despite a big spend," investingLive notes.
The intervention — the first coordinated yen-buying operation by Washington and Tokyo since 1998 — had lifted the yen from around 164 per dollar in late July, near a four-decade low, to a peak of 155 in early August. Authorities likely spent about 53 billion dollars on July 30, in what would be the largest single-day intervention on record if confirmed, followed by an estimated 34 billion dollars on July 31, according to a Bloomberg analysis of central bank accounts reported by Livemint.
Since then, weakness has crept back into the currency as investors refocus on the underlying drivers. TradingView News lists wide interest-rate differentials, mounting fiscal concerns and elevated energy and import costs among the longer-term fundamentals keeping the yen under pressure; Livemint adds geopolitical uncertainty to the mix.
"We think the relatively muted response to the intervention reflects the fundamental reasons for the currency's weakness," Goldman Sachs strategists including Kamakshya Trivedi wrote in a note, adding that they expect "depreciation pressures to reemerge over time absent a shift in global conditions or a policy surprise." Lee Ferridge, a strategist at State Street, said that "without fresh intervention, it will continue to drift lower" and that "the market is disappointed that we didn't see more intervention."
The Bank of Japan kept rates steady at its late-July meeting, but Governor Kazuo Ueda struck a hawkish tone and the summary of opinions flagged rising inflation risks, with one board member suggesting the pace of rate hikes could accelerate. Traders were pricing about a 63 percent chance of a hike by September, with an October move almost fully priced, while sources cited by investingLive point to a possible rate increase at the BoJ's September 17-18 meeting.
For Bank of America FX strategist Alex Cohen, a stronger yen would require either a "more forceful" intervention or signals that the BoJ will raise rates in September. "Yen intervention can clear out leverage and reset levels. But without a meaningful compression in rate differentials, or enough volatility to make carry materially less attractive, the same forces that drove yen weakness hold true," said Brendan Fagan, macro strategist at Bloomberg's Markets Live.
With Japanese markets closed on Tuesday, August 11 for the Mountain Day holiday, traders warned that thinner-than-usual liquidity could create conditions favorable for further official action. Nomura Securities strategists including Yujiro Goto wrote that "attention will remain on the intervention stance of Japanese and US authorities."
Sources
- Livemint (Bloomberg): https://www.livemint.com/market/yen-weakens-1-erases-half-of-us-japan-intervention-gains-11786394040377.html
- investingLive: https://investinglive.com/news/investinglive-americas-fx-news-wrap-10-aug/
- TradingView News: https://tr.tradingview.com/news/te_news:574230:0-yen-gives-back-half-of-intervention-gains/
