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Yen Sees Unexpected Volatility From Possible Intervention

May 2, 2024

2nd May 2024

The yen experienced volatility in early trading on Thursday, surrendering gains after a sharp overnight surge against the dollar, which traders and analysts have attributed to possible intervention by Japanese authorities.

Chart showing USDJPY experiencing a sharp dip followed by an upswing due to possible Bank of Japan intervention on the VT Markets trading app

SEE: Sharp dip followed by a drastic recovery for USDJPY pair on the VT Markets trading app.

The dollar regained strength, rising 0.9% to 155.98 yen as of 0100 GMT, after a dramatic drop from around 157.55 to 153 yen within about 30 minutes late Wednesday.

This sudden movement in the yen occurred after U.S. markets had closed and shortly after the Federal Reserve concluded its policy meeting. Fed Chair Jerome Powell emphasised that persistent inflation might delay expected interest rate cuts.

The timing and nature of the yen’s spike led to speculation about strategic intervention aimed at impacting currency speculators and stabilising the yen’s value.

Japanese Official’s Response

Masato Kanda, Japan’s vice finance minister for international affairs, offered no comments on the speculation of Japan’s intervention in the forex market. This lack of confirmation has kept markets on edge, considering the Ministry of Finance’s history of intervening to manage yen volatility.

Speculators have been quick to point out that the yen’s spike could function as a “sneak attack” aimed at deterring speculators from shorting the yen. They believe that this move is seen as part of a broader strategy by Japan’s Ministry of Finance to control excessive volatility and manage market expectations regarding the yen.

Dollar’s Performance

Despite the recent fluctuations, the dollar has maintained a 10% gain over the yen this year. This strength is supported by the widening gap between U.S. and Japanese long-term government bond yields, which currently stands at 376 basis points.

This disparity was underscored earlier in the week when the dollar reached a 34-year high of 160.245 yen, followed by a sharp correction possibly triggered by a substantial intervention from Japan, estimated at about $35 billion.

The dollar index, a measure against a basket of major currencies including the yen, saw a minor increase of 0.07% to 105.78 on Thursday. This follows a 0.56% decrease on Wednesday, reflective of the broader hesitancy in U.S. monetary tightening expectations. Meanwhile, the euro and sterling held steady, echoing a market sentiment that is cautiously optimistic about the less hawkish stance from the Fed.

Market Sentiment After Fed’s Remarks

Financial markets expressed a collective relief post-Fed announcement, which avoided an increase in hawkish tone. Markets distinguish between a “high for longer” versus “higher for longer” rate outlook, indicating stability rather than an increase in rates.

The recent unpredictability in currency valuations, especially with the yen’s dramatic movements, underscores the potential for strategic trading in a volatile market environment. Understanding the dynamics of monetary policies and market interventions can provide informed traders with opportunities to capitalise on currency fluctuations.

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