The yen touched its weakest in nine months as Japan’s interest-rate gap with the US pushes the currency toward levels that last year saw intervention by authorities in Tokyo.
(Bloomberg) — The yen touched its weakest in nine months as Japan’s interest-rate gap with the US pushes the currency toward levels that last year saw intervention by authorities in Tokyo.
After depreciating for five straight days last week, the yen broke through 145.07 versus the dollar Monday to a zone previously seen in November last year. The dollar-yen pair was down 0.1% at 3:51 p.m. in Tokyo after advancing as high as 145.22 earlier.
Still, investors are wary of any further sharp moves as some Japanese traders return after a holiday Friday and others remain on summer vacations, thinning trading volume. The market is also on watch for potential comments from government officials in Tokyo in coming days.
A bout of pronounced weakness in the currency late in 2022 drew Japanese authorities into the market on three occasions, in what were their first such interventions to support the yen since 1998. The first of the forays came as it tumbled toward 146.
“Intervention concerns in the market will probably grow and officials will probably verbally intervene,” said Sumitomo Mitsui Banking Corp. chief strategist Daisuke Uno. “However, real intervention is unlikely anytime soon.”
Elevated Treasury yields are ramping up the pressure on the yen, with the rate on 10-year US debt approaching 4.2% while Japanese government bonds of the same maturity are around 0.6%.
While the BOJ adjusted its yield-curve control program on July 28 to make it more flexible — allowing 10-year rates room to move up toward 1% — this has failed to stem weakness in the currency. That’s partly because the central bank has also indicated it won’t tolerate a rapid move in yields, and bought JGBs to stem the climb.
Intervention is more likely if moves are more one-sided and volatility is excessive, rather than simply a breach of 145, said Christopher Wong, an FX strategist at Oversea-Chinese Banking Corp. in Singapore. Investors who are long in dollar-yen may be “cautious of jawboning, but with dollar strength in the background, the path of least resistance may be to the upside for now,” he added.
The yen has slumped about 9.5% against the dollar this year, making it the worst performer among key developed-market currencies.
Due to a lack of a major market driver and a quiet holiday season, the pair is unlikely to see a one-way move at the moment, according to Monex Inc. bond and currency trader Tsutomu Soma. “Should there be any market-moving headlines, however, moves may be exaggerated due to thin liquidity.”
–With assistance from Matthew Burgess and Marcus Wong.
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