(Bloomberg) -- The yen extended its advance to rally more than 1% against the dollar, reducing the need for Japanese authorities to step into the market again to support the beleaguered currency.
Japan’s currency gained as much as 1.4% to 156.22 per dollar on Wednesday, its strongest level since June 12. The yen has whipsawed in recent months, reaching a 38-year low of 161.95 on July 3. It then saw a quick four-yen appreciation earlier this month on apparent intervention from the authorities, but the impact from that rapidly faded.
The move is “mainly being driven by the liquidation of short yen positions,” said Lee Hardman senior currency analyst at MUFG Bank Ltd, adding that comments from Japan’s digital minister on the central bank needing to lift interest rates — plus remarks from former President Donald Trump on the exchange rate — could be behind the action.
The authorities are suspected of having spent ¥3.5 trillion ($22 billion) in the foreign-exchange markets to prop up the yen, after deploying record amounts a couple of months earlier.
The yen has slumped almost 12% over the past year, making it the worst performing currency of Group-of-10 countries. Sentiment has been so poor that bearish wagers dominated the market even after the Bank of Japan raised the short-term policy rate for the first time since 2007 in March.
Currency chief Masato Kanda has to find fresh ways to keep speculators on the back foot as authorities look to buy time ahead of monetary policy meetings by the BOJ and the Federal Reserve later this month. The majority of economists surveyed by Bloomberg don’t expect Japan’s central bank to raise rates at the end of July, and no change may spark renewed declines in the yen.
“We are seeing some flows that suggest institutional investors may be taking some profit ahead of the BoJ and the FOMC meetings,” said Roberto Cobo Garcia, head of G-10 FX Strategy at BBVA. “Hot-money flows have been betting against the JPY for months and this looks like a short squeeze.”
(Updates market moves, adds commentary.)
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