(Reuters) – The Japanese yen jumped about 3% on Thursday in its biggest daily gain since late 2022, a move local media attributed to a round of official buying to support the currency, which is at a 38-year low.
The dollar fell to 157.40, just after data showed that consumer inflation in the United States slowed more than expected in June.
But the size and speed of the move has traders bracing for possible Japanese intervention. Japanese authorities intervened in early May to support the yen.
Japanese local broadcaster Asahi TV reported, citing government sources, that officials intervened in the currency market.
comments:
Chris Scicluna, Head of Economic Research, Daiwa Capital Markets, London
“The Treasury won’t confirm this for some time, but the extent of the move gives a strong impression that it was proactive and used the US CPI data to take action.”
Helen Given, Foreign Exchange Trader, Monex USA, Washington, DC
“Traders have speculated over the past two months that any potential intervention by Japanese currency officials could be funded by selling their US Treasury holdings, so any significant move lower there would weigh on the yen more than on other G10 currencies.
“We will have to see, of course, whether today’s big move in the yen holds over the next week or so, but this is certainly good news for the Bank of Japan as speculation about whether and when the bank might intervene on behalf of the struggling currency has been constantly troubling markets over the past month.”
Sameer Samana, Chief Global Markets Strategist, Wells Fargo Investment Institute, Charlotte, North Carolina
“With the CPI doing what it does, it’s hard to separate the two. Given the fact that the bulk of the move happened at the time the CPI came out, I’d say it’s more CPI than intervention. They probably did something overnight.”
Jeff Yu, Chief Economic Strategist, Bank of New York Mellon, London:
“Our view is that interest rate differentials are clearly converging given the US rate cut in September.”
“The hard data also shows that short positions in the yen are the strongest in nearly three years and are extremely extreme, so there is no resistance on the upside.”
Mark Chandler, Chief Market Strategist, Bannockburn Global Forex, New York
“I would be surprised if that were the case, partly because of the time zone and partly because the dollar responds to fundamentals as we expect – lower CPI, lower US interest rates, and of course lower USD/JPY… I think the market has fallen into the trap of driving in the wrong direction.”
“I think there are three general conditions. Volatility, volatility is not very high, it wasn’t today. Second, I think they care about a one-way market, and it hasn’t really been a one-way market for a few weeks. And third, I think about how the dollar reacts to fundamentals, and it responds in line with fundamentals. So, I don’t think the three general criteria are met.”
Giuseppe Sersale, Portfolio Manager, Anthelia, Milan
“The yen is currently moving strongly. Frankly, I can’t pinpoint exactly what is driving it. If this move continues, it could mean that short positions have been heavily biased towards the short yen. This US data has created a strong recovery and a series of stop-losses for those who are short the yen.”
“But if the movement diminishes, or is halved during the day, or becomes very irregular, then there is a contribution from the Japanese Treasury, which does not acknowledge this at the moment… But this movement seems excessive, because the euro gains half a point, the pound gains half a point, and so on. So I have the impression that there is also a contribution from Japan.”
James Malcolm, Head of FX Strategy, UBS London:
“I personally think this is not an intervention.”
“The reality is that the market is so stretched, that it can feed on itself very easily, regardless of whether you think it should stabilize, if USD/JPY is going down and you have a long position, you have to get out… This is the classic definition of liquidating a trade.”
“There may be an incentive to do some intervention later in the day to ensure things don’t rebound.”
Kenneth Brooks, Head of Corporate Research, FX and Rates, Societe Generale
“It’s certainly a big move but I don’t think we can say it has anything to do with intervention,” said Kenneth Brooks, head of corporate and foreign exchange research at Societe Generale.
“The US CPI was the catalyst, it’s more about stopping losses than intervening,” he said.
Steve Englander, Head of Global G10 FX Research and North America Macroeconomic Strategy, Standard Chartered Bank, New York Branch
“The yen story was clearly a spread story, and the longs in USD/JPY had built up. So when you get a definitive number in terms of making September very likely and re-imposing the deflation story, the spread story erodes. It was probably a matter of unwinding because my sense from clients, especially short-term traders, is that everyone was long USD/JPY and thought 165 or higher was probably where it was going.”
“There’s some vague speculation about intervention, but everyone looks at the price chart and says, ‘Oh, that’s kind of a sharp drop, so maybe that could have happened.’ The answer is that it could have happened, but I’d say it’s probably just a leveling off of the situation and not any formal moves.”
Lee Hardman, Chief Foreign Exchange Strategist, Mitsubishi UFJ Bank, London
When the market is heavily concentrated in one direction and then moves in the other direction, it can lead to this type of sudden move. The USD/JPY long position was very overbought
Colin Asher, Chief Economist, Mizuho Bank, London
“Most likely, it is just short covering, as speculation of future US interest rate cuts grows in the wake of the negative CPI reading.”
“It’s a G10 pair where the positioning is more stretched.”
“It’s definitely a big move, as the daily range is the largest since the intervention in early May.”