(Bloomberg) -- Japan’s top currency official’s warning after the yen weakened beyond 150 per dollar underscored the possibility of further slippages despite intervention risks.
The yen rebounded as much as 0.2% to 149.86 per dollar after the official, Atsushi Mimura, said there are currently slightly one-sided, sudden moves in the foreign-exchange market. Yen watchers see the currency depreciating as far as 160 per dollar, largely due to strong data from the US that’s leading traders to dial back bets on rate cuts from the Federal Reserve.
Policy uncertainties in Japan and the US are triggering volatility in the yen rate. New Prime Minister Shigeru Ishiba suggested earlier this month that the nation isn’t ready for more interest rate hikes, though he later said he’s aligned with the Bank of Japan’s views. For the Fed, overnight indexed swaps are suggesting there will be at least two quarter-point rate cuts across its next three meetings until January.
“The market is still over-pricing a rate cut from the Fed, so as we see expectations recede, I think the yen will gradually weaken,” said Tohru Sasaki, chief strategist at Fukuoka Financial Group Inc. “It could go to the 160 level going into next year.”
A further slide in the yen to as far as 150 or 155 may lead to the BOJ hiking rates earlier than expected, said Kazuo Momma, a former executive director in charge of monetary policy at the central bank, at a Bloomberg conference last week. He said the BOJ’s July rate hike was 80-90% motivated by yen weakness.
Until today, finance ministry officials had largely kept quiet about the yen’s moves since Oct. 7, after the release of strong US jobs data triggered a selloff in the yen. This is of significance as wording they use often signals how concerned they are about the currency, and how likely it is that they will carry out intervention.
“There is a possibility that the dollar-yen will rise more, so Mimura probably made the comment to curb the yen’s further depreciation,” said Teppei Ino, Tokyo head of global markets research at MUFG Bank Ltd. “At least in terms of the exchange rate, the Bank of Japan is running out of time to spare.”
Investors are wary of risks from upcoming elections in the US and Japan. The possibility of former president Donald Trump winning in the US, or Japan’s ruling Liberal Democratic Party losing its majority in its lower house election are creating uncertainties in markets.
“If we break 152, I see 156 if we do not see any intervention from the Ministry of Finance,” said Shoki Omori, chief desk strategist at Mizuho Securities Co. There may be more verbal intervention from officials, but there’s less chance of Japan actually propping up its currency ahead of national election on Oct. 27, Omori said.
Statements from central bank officials in the US and Japan will also be tracked closely, with BOJ Deputy Governor Shinichi Uchida reading out a speech by Governor Kazuo Ueda this afternoon. Still, some think the currency is unlikely to move dramatically in the near term due to the cautious environment.
“With the Trump risk in mind, it seems that the environment will continue to make it difficult to sell the dollar in the short-term,” wrote Yujiro Goto, head of foreign-exchange strategy at Nomura Securities Co. in Tokyo, in a note. “We expect the dollar-yen to readjust toward the end of the year, but in the near-term it looks like it will remain high at around 150.”
--With assistance from Daisuke Sakai.
(Updates with details of election risks)
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