On April 28, USD/JPY reached 160 at around 09.30 pm EST and promptly fell to 159.40, followed by a large decline to 154.51 around midnight, a move of more than 500 pips.
There are strong suspicions, but no official confirmation, that Japanese officials interfered to strengthen the sliding yen.
Saqib Iqbal, a financial analyst at Trading.Biz, thinks this intervention won’t give too much comfort to the deteriorating yen.
- USD/JPY spiked to 160, then fell to 154.51, possibly due to Japanese intervention.
- There are doubts that intervention will stabilize the JPY because of the strength of the USD.
- The current market conditions indicate a resemblance to past interventions, which may lead to USD/JPY settling around 158.
He says, “If the Japanese authorities had intervened, the effect might be limited. We are starting a busy week for the dollar, and I think the dollar will perform well against the yen given the divergence between the Feds and BoJ. Also, the market will continue to see JPY as the best funding currency for carry trading.”
Tokyo has warned for weeks that it was prepared to prop up the yen if trading grew too erratic. Ueda stated recently that the central bank would intervene if the impact of the weak yen grew “too big to ignore.”
When asked if the bank had launched FX intervention this morning, Japanese top currency official Masato Kanda responded, “No comment for now.
However, these moves exhibit all of the hallmarks of currency intervention: the 160-level (markets have been predicting this for quite some time now), the abrupt spike in volume, and the magnitude of the move.
One key thing to note is the JPY rise might have been worsened by weaker liquidity circumstances on a Monday morning, a Japanese public holiday.
For the time being, market conditions are generally consistent with those observed on September 22, 2022, when Japanese officials intervened with around $20 billion.
Back then, the USD/JPY first decline was about 3.5%, followed by a recovery worth around half of the original move. Shortly later, the pair went below the original low before rebounding and was trading 2.3-2.5% lower than before the intervention. Saqib believes that if we follow this pattern, USD/JPY will trade around 158 in the coming days.
He thinks markets will be hesitant to push USD/JPY close to 160 again. However, this is also a busy week in the US. Hawkish Fed and Friday’s job data can put substantial pressure on the yen.
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