Yen Drop Deepens After US Data as Intervention Risk Grows

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(Bloomberg) — The yen plunged through a level that Wall Street has warned could push Japanese authorities to step into the market to support the currency and then kept on going. 

The Japanese currency fell nearly 1% to 153.24 versus the greenback on Wednesday afternoon in New York, the weakest level since 1990. The move came after a report showed US consumer prices rose more than estimated in March, triggering a surge in US Treasury yields and the dollar as investors scaled back bets on US interest-rate cuts this year.

A flurry of verbal warnings from Japan officials that they would move to prop up the yen against speculative moves in the market has done little to stop the slide as the yen weakened in lockstep with the dollar’s strength. The market was watching the level of 152 as a line in the sand for the authorities to step in, but the yen moved past that to break 153.

“Markets are clearly calling the bluff of currency officials at the moment,” said Helen Given, a foreign-exchange trader at Monex. “If there’s not some sort of response soon I see more downside.”

The yen’s slide deepened throughout Wednesday as a gauge of the dollar rallied as much as 0.9%.

While top currency official Masato Kanda has said that speculative moves are driving the trend, some investors are disputing that assessment as they weigh the next potential trigger point.

“It’s clearly a US dollar move and Japanese officials can’t really argue its speculators attacking the yen,” said Peter Vassallo, a portfolio manager at BNP Paribas Asset Management. But intervention remains a possibility, he added. “They have been making a lot of verbal noise around intervention, so there may be an element of saving face and wanting to intervene on that basis.”

Finance Minister Shunichi Suzuki has said that he was watching the market with a high sense of urgency and wouldn’t rule out any steps to address excessive moves. Prime Minister Fumio Kishida — who is in the US meeting with President Joe Biden Wednesday — has warned against the yen’s slide, pledging to act appropriately. 

Odds are definitely increasing for action from authorities in Japan, Brad Bechtel, global head of FX at Jefferies Financial Group Inc., said after the yen crossed over the 153 threshold. 

“If Asia takes a run at 154, I would imagine they step in,” he said. 

A measure of underlying US inflation topped forecasts for a third straight month, likely delaying the Federal Reserve’s first interest-rate reduction. Traders shifted rate cut expectations to November from September, pricing two cuts this year after many had previously expected three. 

“The ease with which we went through 152 — the supposed line in the sand for the Ministry of Finance and the Bank of Japan — would suggest that their pain threshold may be higher,” said Valentin Marinov, head of G-10 currency strategy at Credit Agricole. 

The yen has faced renewed downward pressure recently after the BOJ ended the negative interest rate policy in March, but without providing guidance on additional rate hikes and signaling that financial conditions will be kept easy. 

Authorities in Tokyo spent ¥9.2 trillion (about $60 billion) in 2022 to prop up the yen on three occasions. The yen is now much weaker than then, when they intervened in the currency market for the first time since 1998. 

–With assistance from Masaki Kondo, Naomi Tajitsu, Carter Johnson and Naoto Hosoda.

(Updates market moves, adds additional commentary.)

More stories like this are available on bloomberg.com

©2024 Bloomberg L.P.

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Published: 11 Apr 2024, 04:02 AM IST

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