(Bloomberg) — The yen briefly rose above 150 yen against the dollar and fell again as the wide yield gap between Japan and the U.S. continues to weigh on this year’s worst-performing major currency.
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The dollar reached $150.11 in early Asian trading on Monday, but quickly recovered under the weight of option-related dollar selling. There was almost no change at 149.87 at 8:30 a.m. in Tokyo.
Traders are wary of betting on further declines given the risk of intervention by Japanese authorities. Finance Minister Shunichi Suzuki said last week that it was important for the foreign exchange market to reflect stability and fundamentals.
“During a time when liquidity was low and there were few participants, the dollar-yen pair broke through the 150-yen line, probably led by speculators,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo. “Amid growing concerns of intervention, the pair is likely to be on the upswing during Tokyo trading hours, especially above the 150 line. People will remain nervous.”
The wide interest rate differential with the United States is reflected in the yield on 10-year U.S. Treasuries at 4.91%, which is almost six times higher than Japan’s 0.835%. Divergence in monetary settings is exacerbating the gap, with Bank of Japan Governor Kazuo Ueda saying on Friday that the Bank of Japan will continue to patiently maintain accommodative settings to achieve a stable and sustainable 2% inflation target. said.
Traders are on edge as the Bank of Japan’s policy meeting on October 30-31 approaches and tensions in the Middle East add to uncertainty in global markets. The dollar, yen, Swiss franc and other currencies fell on Monday following news that an air base in Iraq housing U.S. and international forces had been targeted by rockets overnight as fighting continued to intensify involving local militias. Safe-haven currencies continue to attract attention.
Investors are also worried about a Nikkei newspaper report that Bank of Japan officials are mulling the question of whether to adjust the yield curve control program settings as domestic long-term interest rates rise in parallel with U.S. interest rates. The Nikkei Shimbun reported that it is being digested. He did not say where he obtained the information.
Rodrigo Catril, a currency strategist at National Australia Bank in Sydney, said of the YCC program: “If the Bank of Japan wants the yen to appreciate, I think it needs to do more than just widen the yen again.” . “It’s natural for the market to be cautious.”
According to RBC BlueBay Asset Management, the yen could rise to 145 yen against the dollar if the Bank of Japan’s adjustments to its ultra-easy monetary policy this month show signs of raising interest rates.
intervention questions
However, since the yen hit 150.16 yen on October 3, it had remained slightly below 150 yen to the dollar until Monday. That move suddenly reversed, rebounding to 147.43 yen, increasing speculation that Japan had entered the market to support the yen. Government officials stuck to their strategy of keeping investors speculating about the next day by refusing to say whether they had intervened.
Between September and October last year, Japan disbursed approximately 9 trillion yen ($60 billion) in three separate yen aid interventions, its first since 1998. This year, the yen has fallen more than 12% against the dollar, making it the worst depreciation of any country. Peers in that Group-of-10.
Masato Kanda, Japan’s chief of staff for the monetary authority, said that as a general rule, interest rate hikes and intervention are the way to respond to excessive currency fluctuations. He vowed to take action as necessary against excessive volatility, but declined to say whether recent market movements were speculative.
Still, the International Monetary Fund said it did not see any factors that would force Japan to intervene in foreign exchange markets to support the yen.
–With assistance from Saburo Funahiki and Matthew Burgess.
(Updates with comment from currency strategist)
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