Japanese yen surges against dollar on possible intervention

Japanese yen surges against dollar on possible intervention

By Chuck Mikolajczak

NEW YORK (Reuters) -Japan’s currency surged as much as 5 yen against the dollar from a fresh 34-year low hit earlier on Monday, with traders citing yen-buying intervention by Japanese authorities for the first time in 18 months.

The outsized move kicked off what could be a busy week for currency traders, with the U.S. Federal Reserve capping off its two-day policy meeting on Wednesday, the U.S. jobs report on Friday, and European inflation data throughout the week, beginning with German and Spain on Monday.

The dollar fell as far as 154.4 yen in several rapid moves that knocked it from an intraday high of 160.245, its highest since 1990.

The greenback was last at 156.83 yen, down 0.94%. Trading in Asia was thinner than normal due to Japan’s Golden Week holiday.

“The timing actually makes sense because you’re going to have a thinner market, so they’re going to get more effect out of whatever they do and that’s why they chose to do it relatively early in the Asian market, they can push it around more,” said Joseph Trevisani, senior analyst at FX Street in New York.

Japan’s top currency diplomat Masato Kanda declined to comment when asked if authorities had intervened, though traders said they had and the Wall Street Journal said Japanese authorities had intervened, citing people familiar with the matter.

Markets had been anticipating that Japan might intervene to prop up the yen after the currency fell more than 10% against the dollar this year.

The Commodity Futures Trading Commission’s weekly commitments of traders report showed that non-commercial traders, a category that includes speculative trades and hedge funds, had increased their yen short positions to 179,919 contracts in the week ended April 23, the largest since 2007.

The yen had moved about 3.5 yen on Friday after the Bank of Japan kept policy settings unchanged and offered few clues on reducing its Japanese government bond (JGB) purchases – a move that might have put a floor under the currency.

Japan’s suspected intervention by the central bank comes just days ahead of the Federal Reserve’s May 1 policy announcement, with markets widely expecting the Fed will keep rates unchanged, according to CME’s FedWatch Tool, given the solid labor market and recent inflation data that was hotter than anticipated.

Investors have continually had to dial back expectations for the timing and magnitude of U.S. rate cuts this year, and the disparity in policy stances from the Bank of Japan and Fed have fueled the yen weakness.

“Over time with this interest differential between the BoJ and the Fed and the obvious reluctance of the BoJ to do anything about that, to change their decades old policy, now essentially zero interest rates, it’s tough to build up any momentum for the Japanese yen going the other way to strengthen,” said Trevisani.

In addition, other major central banks such as the European Central Bank and Bank of England are seen as more likely to begin to cut rates in the near future.

The dollar index fell 0.09% at 105.86, with the euro up 0.08% at $1.0701. Sterling strengthened 0.33% to $1.2529.

European flash inflation data this week will give more information for the ECB to consider. Spain’s European Union-harmonized inflation rate stood at 3.4% in the 12 months through April, up from 3.3%. Data from Germany showed inflation rose slightly in April due to higher food prices and a smaller drop in energy prices.