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Japanese Yen Surges; Is it BoJ Intervention?

April 29, 2024

In a dramatic turn of events in Asian markets on Monday, the Japanese yen recorded a surge against the dollar, appreciating by 5 yen, with traders attributing this sharp recovery to heavy dollar-selling by Japanese banks. This intervention seemed to be a response to the yen touching fresh 34-year lows earlier in the day.

Picture: Japanese yen surged against the dollar as seen on the VT Markets trading app.

The dollar’s drop was pronounced, falling from 160.245 to around 158 and then dipping further to 155.25 yen. By 0500 GMT, the yen stood stronger at 155.86, marking a 1.6% gain during a quieter trading session during Japan’s Golden Week holiday.

Dramatic movements like these typically indicate bank intervention. This move comes after a nearly 11% decline in the yen this year, which had markets alert for any potential action from Japanese authorities.

Data from the Commodity Futures Trading Commission highlighted an increase in yen short positions by non-commercial traders, which includes speculative trades and hedge funds, reaching 179,919 contracts by the week ending April 23 — the highest since 2007.

Market Response to BoJ Policy

The yen’s volatility was also evident last Friday, moving nearly 3.5 yen between 158.445 and 154.97. This occurred as traders expressed their disappointment following the Bank of Japan’s decision to maintain its policy settings and provided little indication of a reduction in its Japanese government bond purchases. Such a move might have supported the yen’s value.

The timing of Japan’s suspected intervention is crucial, occurring just days before the Federal Reserve’s May 1 policy review. With U.S. inflation figures remaining high, and Fed officials, including Chair Jerome Powell, indicating that any plans for rate adjustments would be data-dependent, markets had been bracing for potential delays in U.S. rate cuts.

Currently, the Fed is expected to maintain its benchmark interest rate at 5.25%-to-5.5% during the April 30-May 1 meeting, with market projections now leaning towards possibly just one rate cut this year, likely by November.

Yen’s Impact on Euro and Sterling

The ripple effects of the yen’s movements were also felt by other major currencies, with both the euro and sterling experiencing gains, although they remained within the volatile ranges observed during Friday’s trading session. Sterling was noted at $1.2541, up by 0.4%.

With the Fed’s decision highly anticipated in the context of persisting high U.S. inflation rates and potential rate adjustments, CFD traders might find opportunities to leverage these insights into their strategies, particularly in the dollar-yen pairs. CFD trading allows investors to respond quickly to market changes without owning the underlying asset, providing a flexible way to capitalise on the Bank of Japan’s stance.

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