(Bloomberg) -- The risk of intervention has swung back into sharp focus for investors as they ready for the yen to weaken back to 150 against the dollar and beyond.
The Japanese currency dropped as far as 149.98 on Monday after two consecutive weeks of declines. It had the worst loss since 2009 in the five days through Oct. 4. The prospect of further depreciation in the currency is prompting strategists to warn of increased intervention risk near the 150 level, or the 200-day moving average of 151.25.
Notes of caution from Japanese officials recently mean the market now doesn’t see interest-rate differentials between the US and Japan narrowing as quickly as previously expected. Japan’s new Prime Minister Shigeru Ishiba suggested that the nation isn’t ready for rate hikes, while robust data from the US is pushing traders to trim bets of monetary easing there. Federal Reserve Governor Christopher Waller said on Monday that the central bank should cut rates with caution.
“The key point is whether or not the yen will exceed 152,” said Takuya Kanda, head of research at Gaitame.com Research Institute in Tokyo. This marks a key level for the yen, because last time it broke through that level, it quickly declined toward 160, he said.
Japan intervened in the markets in July, when the currency hit a 38-year low against the dollar. The yen traded as weak as 161.95 at one point in early July before a sharp rally brought it to 149.98 at the end of that month.
Five bouts of yen buying between 2022 and the first half of this year strengthened Japan’s currency by more than five yen on average, according to Bloomberg-compiled data.
Japan’s chief currency official Atsushi Mimura said earlier this month that he’s watching the FX market with a sense of urgency, including what happens with speculative moves. The country’s new Finance Minister Katsunobu Kato also warned that the sudden swings in the yen can have a negative impact on companies and households.
Still, strategists are divided, with some believing that there is still a long way to go before the authorities decide to step back into the market.
“Intervention will not take place unless the yen weakens past 160,” said Eiichiro Miura, head of Nissay Asset Management Corp.’s strategic investment department.
Net long positions of leveraged funds in the yen retreated for a second week, indicating they are less bullish, according to US Commodity Futures Trading Commission data as of Oct. 8.
Even so, Keiichi Iguchi, a senior strategist at Resona Holdings Inc., said that there is a risk that the yen will come under selling pressure if expectations of US interest-rate cuts are revised. “If the yen continues to weaken, we need to be careful about intervention,” he said.
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