JPY: Suspected FX Intervention

​Japanese authorities are suspected to have intervened in the foreign exchange (FX) market today, with the USD/JPY pair experiencing significant fluctuations. The pair reached 160.0 around 02.30am BST before dropping to 159.40 and then plummeting to 105.0, marking nearly a 3% decline. ​
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Masato Kanda, a top Japanese currency official, declined to confirm any intervention when questioned, stating, “No comment for now.” However, the market movements exhibit typical signs of intervention, such as the 160.0 threshold, a surge in trading volume, and the magnitude of the move. The thin liquidity conditions on a Monday morning, coupled with a Japanese public holiday, may have exacerbated the yen's spike. These developments echo those of September 22, 2022, when Japan intervened with approximately $20 billion to bolster the yen. If history repeats, the USD/JPY pair could end up trading around 156.50 by the end of the day.

Market observers are closely monitoring Japanese officials for further insights. Confirmation of intervention and indications of a sustained campaign rather than a one-off move are particularly sought after. The tendency to test officials' tolerance by selling rallies has been observed in past interventions, although reluctance to push the pair too close to 160.0 again is evident from the September 2022 experience. Additionally, with a week filled with significant US events, including a potentially hawkish Fed and strong economic data, the yen could face renewed pressure.

In Monday's early American session, USD/JPY found temporary support near 155.00 following a steep decline from its historic highs of 160.00, which market participants attributed to suspected Japanese intervention. Despite speculation, Masato Kanda refrained from confirming any FX intervention during his speech in the European session. However, he emphasized the negative impact of speculative and rapid FX movements on the economy.

Expectations of further intervention remain high as the Japanese yen continues to weaken. The Bank of Japan's shift towards monetary policy tightening after a prolonged period of ultra-easy monetary policy has not provided firm support for the yen. Concerns persist regarding the limited scope for policy tightening due to uncertainties surrounding wage growth. While the BoJ moves cautiously towards policy normalization, expectations of sustained policy divergence between the BoJ and the Federal Reserve hinder the yen's stabilization.