Written by Kevin Buckland, Tetsushi Kajimoto, and Gertrude Chavez-Dreyfus
TOKYO/NEW YORK (Reuters) – The yen rose against the dollar in the early hours of Asia on Thursday in what traders suspected was another round of intervention by Japanese authorities to halt a sharp decline in the currency, with the 160-point level considered a key line. From defense.
The dollar fell to 153 yen specifically from about 157.55 yen for reasons that were not immediately clear, but traders and analysts were quick to attribute this to the sale of the dollar ordered by the Japanese Ministry of Finance to support the currency, which is suffering from its lowest levels in 34 years.
The latest move came in a quiet period for the currency pair, after the US stock market closed and with the Federal Reserve's monetary policy meeting ending hours ago.
The dollar was already on the decline after Federal Reserve Chairman Jerome Powell reiterated that the central bank's bias was toward lowering interest rates, even if the timing was delayed by flat inflation.
“There is no doubt that the Ministry of Finance intervened,” said Daisaku Ueno, chief currency strategist at Mitsubishi UFJ (NYSE:) Morgan Stanley Securities, adding that officials had set a rate of 160 yen per dollar as their “last line of defence.”
He added, “This morning's intervention is evidence that the Japanese authorities will intervene at any time of the day and on any day of the year.” “And they will continue to interfere.”
The Bank of Japan's money market forecast for cash balances later showed a discrepancy of more than 9 trillion yen ($57.96 billion) with the broker's forecast. Intervention of this magnitude is suggested – which would represent a new record – although factors other than foreign exchange intervention could affect money market balances.
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In addition, Columbia University academic and former Finance Ministry executive Takatoshi Ito told Reuters it was plausible that Japanese authorities intervened to signal that they saw 160 yen to the dollar as their line in the sand.
The yen came under pressure as interest rates rose in the United States and interest rates in Japan remained near zero, causing money to move out of the yen and into higher-yielding assets.
Pressures have intensified since March as expectations of interest rate cuts from the Federal Reserve declined, strengthening the yen's position as a cheap financing currency.
When Reuters contacted Japan's Deputy Finance Minister for International Affairs, Masato Kanda, who oversees currency policy, he said he had no comment on whether Japan had intervened in the market.
A US Treasury Department spokesman also declined to comment on the move in the currency pair.
Yellen told Reuters last week that currency interventions are not acceptable except in “rare and very exceptional circumstances” when markets are disorganized and there is excessive volatility.
the challenge
The difficulty of halting the yen's decline was evident in the speed with which the currency reversed its trend after its rise.
By 1000 GMT, the yen fell 0.5 percent to 155.23 yen to the dollar, giving up some of the gains it made overnight.
It remains down about 10% against the dollar this year amid waning bets on near-term interest rate cuts from the Fed, while the Bank of Japan signaled it would slow with further policy tightening after its first rate hike since 2007 in March.
The gap between long-term government bond yields in the two countries is 376 basis points, which helped push the yen to its lowest levels since April 1990 at 160.245 to the dollar on Monday. Official data earlier this week indicated that the sharp rebound that followed was due to Japanese intervention that totaled about $35 billion, close to a record amount. The Ministry of Finance has consistently refused to reveal whether it was behind this move.
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($1 = 155.2900 yen)