(Bloomberg) -- The yen advanced against the dollar in choppy trading as traders remained on edge after a suspected intervention and rate checks by Japanese authorities.
The currency rose as much as 0.9% on Friday to 157.38 per dollar after US economic data, wiping out an early loss of as much as 0.4%. Earlier, in the Tokyo session, the Bank of Japan triggered a brief rally in the yen when it called traders to check on exchange rates.
A Bloomberg analysis of central bank accounts suggest Japan likely spent around ¥3.5 trillion ($22 billion) on Thursday to prop up the yen — marking what appeared to be the third intervention this year.
“It was good timing, and it had a certain effect,” said Takafumi Onodera, who’s in charge of sales and trading at Mitsubishi UFJ Trust & Banking Corp. in New York. “At the very least, yesterday made yen short speculators more wary.”
The moves leave Japan little better than it was during April and May, when the government spent a record ¥9.8 trillion to stem losses. That’s likely to embolden bears to bet on further declines, while also increasing the risk of the finance ministry ordering further intervention to keep them at bay.
The upshot for investors is a nail-biting run to July 31, when both the BOJ and Federal Reserve will deliver policy decisions that may determine the longer-term fate of the currency. A rate hike and large cuts to bond buying by the BOJ, paired with a signal on rate cuts from the Fed, may be enough to put a floor under it.
Anything less would likely leave the focus on structural issues that are undermining the yen, not least Japan’s wide interest-rate gap with the US.
There was “palpable nervousness in the market” in recent sessions from hedge funds looking to protect carry trades for scenarios like the one that just played out, said Ruchir Sharma, London-based global head of FX option trading at Nomura International Plc.
Japan’s top currency official, Masato Kanda, told reporters in Tokyo on Thursday that he wasn’t in a position to say if the move was intervention. He followed early Friday, saying that given the yield gap between the US and Japan, speculation was probably behind the moves.
TV Asahi, a Japanese broadcaster, reported officials had stepped into the currency market. Daily newspaper Mainichi Shimbun also reported an intervention, citing an unidentified Japan government official.
US Treasury spokesperson Megan Apper declined to comment.
The rate checks from the BOJ came around 8:30 a.m. in Tokyo, according to market participants, who asked for anonymity because the communications are confidential. They said the BOJ asked for rates for the yen against the euro.
No official actions were confirmed for a sharp move around 9 a.m. New York time, when the yen gained from around 158.80 per dollar to 157.38 in a period of roughly 10 minutes.
“Today, we just had less than a two big-figure move,” said Win Thin, global head of markets strategy at Brown Brothers Harriman. “So I doubt it’s the BOJ again, unless it’s an even smaller amount.”
The yen has recently been trading at the weakest levels against the euro since the common currency was created in January 1999. Japan has never bought the yen against the euro, though it has it sold in the past versus the currency, according to finance ministry data.
The BOJ last conducted checks in September 2022, which were followed a few days later by intervention. Rate checks typically happen when volatility increases and verbal intervention appears insufficient to tame currency moves.
The yen spike on Thursday, which came just after a softer-than-expected reading of US inflation, shared some similarities with this year’s previous interventions, which appear to have happened on April 29 and May 1.
The yen’s slump of 11% against the dollar this year makes it the worst-performing Group-of-10 currency. It touched its weakest since 1986 just last week, fueling a new wave of jawboning from Japanese authorities about their willingness to act to bolster the currency if necessary.
Here’s what Bloomberg strategists say...
“It looks like Japanese authorities timed an intervention yesterday just at the moment when it was already bid because the CPI print was causing a dollar selloff. Hitting a market that’s turning like that gets you more bang for your yen. It’s the sort of thing EM central banks do when trying to flush out short positions and punish traders. The downside to that sort of intervention is that you generate volatility, whereas most FX interventions are — nominally at least — aimed at curbing volatility.”
— Sebastian Boyd, strategist. Read more on MLIV.
Sentiment has been so poor on the yen that bearish wagers have dominated the market, with speculative traders accumulating a massive short bet against the Japanese currency.
Overall positioning on the yen remained near the most short since 2007 through Tuesday’s close, according to the latest Commodity Futures Trading Commission data for the week ending July 9.
Asset managers cut their bearish bets on the Japanese currency for the first time in more than a month, but a broader group of speculators still holds more than $14 billion tied to wagers that the yen will fall.
--With assistance from Garfield Reynolds and David Finnerty.
(Adds latest CFTC data, updates charts.)
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