Yen Surges 500 Pips Amid Suspected U.S.-Japan Coordination in FX Market
During New York trading hours on Thursday, the yen at one point surged more than 500 pips, marking its biggest intraday gain since December 2023. Japanese people familiar with the matter said the intervention was intended to support the yen. U.S. authorities, meanwhile, conducted so-called “rate checks” at around 2:30 a.m. Tokyo time, an action often viewed as an early signal that Washington itself is preparing to intervene in the foreign-exchange market. The suspected intervention came shortly before the Bank of Japan was due to announce its policy decision around midday Friday. Signs indicated that the move may also have received support from the United States. U.S. involvement added weight to Japan’s intervention and could make traders more cautious. Treasury Secretary Scott Bessent said in an interview on Thursday local time that the yen “seems to be significantly undervalued” and that “excessive volatility” is unhealthy. Japan’s top foreign-exchange official, Atsushi Mimura, declined to comment Friday when asked whether intervention had taken place. He said, however, that Japan had received more than moral support from the United States. Rinto Maruyama, a senior foreign-exchange and interest-rate strategist at SMBC Nikko Securities, said that by intervening ahead of the Bank of Japan’s monetary policy meeting, authorities were likely seeking to maximize the impact through surprise. He said this contrasted sharply with the more transparent and readily identifiable intervention in April. Maruyama added that the recent sharp rise in long-term bond yields in both Japan and the United States was a “key factor behind Japan’s foreign-exchange intervention and the U.S. rate-check action.” Several analysts also said the dollar index’s unexpectedly steep decline on Wednesday after the Federal Reserve’s decision may have created favorable conditions for the Bank of Japan to intervene. The dollar fell as low as 157.98 yen on Thursday and was most recently trading at around 160.67 during Asian hours. Despite the brief surge, the yen has still fallen about 6% against the dollar over the past 12 months, the worst performance among the G10 currencies. Japanese Finance Minister Satsuki Katayama said in response to media questions that she could not disclose whether foreign-exchange intervention had occurred. She reiterated that authorities remained highly vigilant and were ready to respond at any time. The yen has depreciated to a 40-year low in recent months and has remained under pressure from rising oil prices, persistent fiscal deficits and widening interest-rate differentials. Even after Japanese authorities spent a record JPY 11.73 trillion (USD 73.4 billion) buying yen in the public market last quarter, the currency continued to weaken. Based on Japan’s foreign-exchange reserve data, the country likely used foreign securities it held, including U.S. Treasuries, to fund that intervention. The unprecedented size of the funds Japan deployed underscored both the severity of the situation facing the country and the difficulty of moving against a global foreign-exchange market with USD 9.5 trillion in daily trading volume. Yen depreciation pressure remains strong After refraining from intervention for a quarter of a century, Japan returned to the foreign-exchange market in 2022 to support the yen and intervened again in 2024, seeking to slow the currency’s decline against the dollar. The yen’s depreciation began as central banks around the world raised interest rates amid accelerating post-pandemic inflation, while the Bank of Japan kept its policy rate below zero to stimulate economic growth. The latest move in the yen came on the eve of the Bank of Japan’s policy decision on Friday. Market participants expected policymakers to leave rates unchanged after raising them last month. That increase pushed Japan’s benchmark interest rate to its highest level since 1995, as investors worried that the Bank of Japan had been slow to respond to inflation. Before the Bank of Japan’s decision, a Citigroup strategist team led by Daniel Tobon said the yen would weaken and recommended going long dollar/yen ahead of the decision. The team advised investors to position themselves in the options market for a weaker yen against the dollar. In a client report, it said Governor Kazuo Ueda was unlikely to signal a more hawkish stance than the market expected. Although the Federal Reserve kept interest rates unchanged this week, traders still expected it to raise rates later this year, which would keep the interest-rate gap between the United States and Japan at levels unfavorable to the yen. On the effectiveness of the latest intervention, Takeru Yamamoto, a New York-based trader at Sumitomo Mitsui Trust Bank, said the move could make foreign-exchange investors think twice and temporarily stop selling the yen.
The suspected intervention came shortly before the Bank of Japan was due to announce its policy decision around midday Friday. Signs indicated that the move may also have received support from the United States.
U.S. involvement added weight to Japan’s intervention and could make traders more cautious. Treasury Secretary Scott Bessent said in an interview on Thursday local time that the yen “seems to be significantly undervalued” and that “excessive volatility” is unhealthy.
Japan’s top foreign-exchange official, Atsushi Mimura, declined to comment Friday when asked whether intervention had taken place. He said, however, that Japan had received more than moral support from the United States.
Rinto Maruyama, a senior foreign-exchange and interest-rate strategist at SMBC Nikko Securities, said that by intervening ahead of the Bank of Japan’s monetary policy meeting, authorities were likely seeking to maximize the impact through surprise. He said this contrasted sharply with the more transparent and readily identifiable intervention in April.
Maruyama added that the recent sharp rise in long-term bond yields in both Japan and the United States was a “key factor behind Japan’s foreign-exchange intervention and the U.S. rate-check action.”
Several analysts also said the dollar index’s unexpectedly steep decline on Wednesday after the Federal Reserve’s decision may have created favorable conditions for the Bank of Japan to intervene.
The dollar fell as low as 157.98 yen on Thursday and was most recently trading at around 160.67 during Asian hours. Despite the brief surge, the yen has still fallen about 6% against the dollar over the past 12 months, the worst performance among the G10 currencies.
Japanese Finance Minister Satsuki Katayama said in response to media questions that she could not disclose whether foreign-exchange intervention had occurred. She reiterated that authorities remained highly vigilant and were ready to respond at any time.
The yen has depreciated to a 40-year low in recent months and has remained under pressure from rising oil prices, persistent fiscal deficits and widening interest-rate differentials. Even after Japanese authorities spent a record JPY 11.73 trillion (USD 73.4 billion) buying yen in the public market last quarter, the currency continued to weaken.
Based on Japan’s foreign-exchange reserve data, the country likely used foreign securities it held, including U.S. Treasuries, to fund that intervention.
The unprecedented size of the funds Japan deployed underscored both the severity of the situation facing the country and the difficulty of moving against a global foreign-exchange market with USD 9.5 trillion in daily trading volume.
Yen depreciation pressure remains strong
After refraining from intervention for a quarter of a century, Japan returned to the foreign-exchange market in 2022 to support the yen and intervened again in 2024, seeking to slow the currency’s decline against the dollar. The yen’s depreciation began as central banks around the world raised interest rates amid accelerating post-pandemic inflation, while the Bank of Japan kept its policy rate below zero to stimulate economic growth.
The latest move in the yen came on the eve of the Bank of Japan’s policy decision on Friday. Market participants expected policymakers to leave rates unchanged after raising them last month. That increase pushed Japan’s benchmark interest rate to its highest level since 1995, as investors worried that the Bank of Japan had been slow to respond to inflation.
Before the Bank of Japan’s decision, a Citigroup strategist team led by Daniel Tobon said the yen would weaken and recommended going long dollar/yen ahead of the decision. The team advised investors to position themselves in the options market for a weaker yen against the dollar. In a client report, it said Governor Kazuo Ueda was unlikely to signal a more hawkish stance than the market expected.
Although the Federal Reserve kept interest rates unchanged this week, traders still expected it to raise rates later this year, which would keep the interest-rate gap between the United States and Japan at levels unfavorable to the yen.
On the effectiveness of the latest intervention, Takeru Yamamoto, a New York-based trader at Sumitomo Mitsui Trust Bank, said the move could make foreign-exchange investors think twice and temporarily stop selling the yen.