Yen jumps abruptly as intervention speculation swirls

SINGAPORE - The yen surged suddenly on May 6, sparking speculation of further intervention by Tokyo, which is widely credited with last week’s sharp rally in the battered currency.

There has been no confirmation from Japan that it is buying the yen but officials have been threatening intervention for months. Sources told Reuters that the authorities intervened last week and money market data suggests they sold about US$35 billion (S$44.4 billion).

The yen climbed from around 157.8 to the US dollar to 155 in a half hour of holiday-thinned trade in the Asia session.

The move is at least the fourth sudden unexplained jump in the yen in the past five sessions.

Against the Singapore currency, the yen jumped 0.7 per cent to 122.94 per Singapore dollar as at 4.05pm Singapore time from its previous day’s close. The yen has gained about 0.9 per cent in the past month.

A weak yen is pushing up inflation and living costs in Japan, and officials say the drag on the economy is becoming palpable. But with the currency freely floating, any intervention pits policymakers against traders who have been selling the yen for years, and who soon dialled back its jump on May 6.

“It is obviously an intervention,” said executive adviser Yuji Saito at SBI FX Trade in Tokyo. The exchange rate was soon back to 156.4 to the US dollar, suggesting that any intervention was being resisted by the market.

Japan’s Ministry of Finance (MOF) was not immediately available for comment on what is a public holiday in Japan.

Japanese Finance Minister Satsuki Katayama had on May 4 warned against speculative moves in foreign exchange, after a brief jolt higher in the yen at the start of the week.

Investors have been bracing for further yen buying from Japanese authorities after sources told Reuters last week that Tokyo had stepped in to stem the yen’s decline on April 30.

Traders at agent banks have been standing by to get intervention orders throughout Japan’s Golden Week holiday period, one market source told Reuters.

May 6’s rise in the yen also came as the US dollar fell broadly on hopes of a resolution to the US-Iran stand-off in the Strait of Hormuz.

“It’s possible the authorities decided that was a good moment to give the yen an extra nudge,” said Thomas Mathews, head of markets for Asia-Pacific at Capital Economics. “That said it might be just thin holiday-affected trade.”

Analysts expect the intervention impact to be temporary and some investors have eyed drops in the dollar/yen rate as an ideal entry point for shorting the Japanese currency and opening “carry trades” which profit from interest rate differences.

“Taking into account high energy prices and Japan running substantially negative real interest rates, plus the dollar being in demand, Tokyo cannot expect a sustained drop in USD/JPY,” said Mr Chris Turner, ING’s global head of markets.

“The wild card, however, would be whether the US Treasury gets involved,” he said, which is a possibility after an unusual “rate check” on yen prices by the New York Federal Reserve in January.

“Joint US-Japanese intervention to sell USD/JPY would be far more significant than solely Japanese intervention. Here, not only would Washington be backing up Tokyo’s view that the yen has been unfairly targeted, but it could also develop a view that Washington felt that the dollar was too strong.” REUTERS