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The dollar jumped to a new 34-year high against the yen in early trading Thursday in Tokyo, briefly pushing the Japanese currency through what was seen as a key support line and reviving market speculation that authorities in Tokyo might try to intervene.
The dollar rose above 153 yen to the dollar for the first time since mid-1990 – a line that some analysts previously warned could represent a “line in the sand” and require direct intervention by Japan.
Shortly after the move, Japan's Deputy Finance Minister for International Affairs, Masato Kanda, told reporters that authorities would not rule out taking any measures to address excessive movements in the exchange rate.
But while he said the latest moves were “rapid,” Kanda stopped short of declaring the latest move “excessive,” which two traders in Tokyo said could be taken as a sign that the risk of intervention has not changed significantly.
“I don't have anything special [exchange rate] “We take the level into account but excessive volatility has a negative impact on the economy,” Kanda said.
The dollar's latest move against the yen followed stronger-than-expected US inflation data in March, which pushed up market expectations for the timing of US interest rate cuts and sent bond yields and the dollar jumping.
The yen has been trading near the 153 yen line in recent weeks, prompting Japanese authorities to make statements that analysts interpreted as the highest level of verbal intervention.
Japan entered the markets directly on three occasions in 2022, buying the yen to stabilize the Japanese currency as it weakened toward 152 yen to the dollar.
Traders in Tokyo said that with markets now betting that a US rate cut will not happen before at least September, the wide spread in interest rates between the US and Japan would put continued downward pressure on the yen.
Japan ended eight years of negative interest rates in March when it raised its overnight interest rate to a range of zero to 0.1 percent, but interest rates are expected to remain low for some time.
Currency analysts said Tokyo markets would be alert for signs that Japan's Finance Ministry is conducting an “interest rate check,” where officials check the yen rate that traders are offering as a precursor to possible official intervention in the currency.
But Benjamin Chatel, a foreign exchange analyst at JPMorgan in Tokyo, said Japanese officials will be careful to avoid appearing as if they are pushing a line. “We may see the dollar/yen pair test new highs before triggering an official response,” he said.
Shorting the yen to invest in high-yielding currencies including the dollar remains a popular trade, Stiehl said.
“Given the tapering of the Fed’s cuts this year, there is a widespread perception among macroeconomic investors that intervention will only slow the yen’s depreciation, not stop it,” Chatel added.
Others questioned the value for Japanese officials in intervening on a day when currency movements were driven by broad dollar strength rather than Japan-specific factors.
On Wednesday, the dollar rose just over one percent against a basket of currencies, including the yen, recording its best single-day performance in more than a year.
“Japanese officials have warned that the ‘speculative’ moves are affecting and have threatened to intervene. But the big jump between the dollar and the yen suggests that the dollar’s strength will not be fought for now,” analysts at Action Economics said.
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