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It is said that the Japanese authorities took "secret" action, and the yen soared by more than 2%

2024-07-12

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The yen surged more than 2% against the dollar on weaker-than-expected U.S. inflation data and market news that Japanese authorities stepped in to support the currency.

The yen rose as much as 4 yen to 157.44 yen per dollar in the minutes after the U.S. economic data was released, and the surge in trading volume reminded people of past interventions by Japanese authorities.

Masato Kanda, Japan's top foreign exchange official, said he could not determine whether the move was an intervention. If intervention occurred, he said the authorities would disclose it at the end of the month.

"We expect the yen to fluctuate sharply. This seems to be the time to intervene after the weak CPI," said Takafumi Onodera, head of sales and trading at Mitsubishi UFJ Trust Bank in New York.

Japan's TV Asahi reported that officials had intervened in the foreign exchange market. The Mainichi Shimbun also quoted an unnamed Japanese government official as saying that officials intervened in the foreign exchange market.

The yen has been falling over the past year, becoming the worst performing Group of Ten currency. The yen fell to its lowest point since 1986 last week, prompting renewed warnings from Japanese authorities that they are willing to act to support the currency if necessary.

Thursday's surge has similarities to previous interventions this year, when the Ministry of Finance bought 9.8 trillion yen on April 29 and May 1 to curb pronounced volatility. The yen posted its biggest one-day gain since May 1 on Thursday.

According to a trader who asked not to be named, foreign exchange brokers saw trading volumes within an hour of the inflation data comparable to interventions earlier this year.

"Certainly the magnitude of the move does suggest it was likely an intervention," said Jane Foley, head of foreign exchange strategy at Rabobank. "It's very exciting and it really sent ripples through our trading desks."

Masato Kanda, Japan's vice finance minister for international affairs, stuck with a strategy of keeping market participants guessing.

"Our approach is not to basically say whether we intervened or not," he said. "While some see the move as a reaction to the CPI results, others say there may be other factors at play."

Yusuke Miyairi, a currency strategist at Nomura International, said he thought the fact that Kanda was able to speak to the media so late in Tokyo was "very telling."

Foreign central banks' use of a key Fed tool rose to a record high in the week leading up to July 10, suggesting that policymakers around the world are increasing their cash positions.

"If it is indeed an intervention, the timing is almost perfect for maximum impact," said strategist Sebastian Boyd.

In any case, the yen is unlikely to strengthen sustainably without changes in U.S. and Japanese policy, said Leah Traub, a portfolio manager at Lord Abbett & Co. Although U.S. yields have fallen in recent weeks, the spread between 10-year U.S. Treasuries and Japanese government bonds remains well above its long-term average over the past decade.

Despite the Bank of Japan's first increase in short-term policy rates since 2007 in March, sentiment on the yen has been very low, with bearish bets still dominating the market.

Speculative traders have accumulated a large number of bearish bets on the yen. Non-commercial traders currently hold about 189,560 contracts (worth about $14.7 billion) betting that the yen will fall in the coming weeks, the most since 2007, according to data from the Commodity Futures Trading Commission for the week ending July 2.

"Based on this positioning alone, I would expect any data surprise to lead to greater volatility in the yen," said Ed Al-Hussainy, global rates strategist at Columbia Threadneedle Investment.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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It is said that the Japanese authorities took "secret" action, and the yen soared by more than 2%

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