Source: Golden Ten Data

In early trading on Thursday (May 2), the yen fell sharply again. As of press time, the intraday increase of the dollar against the yen had extended to 1.13% to 156.19, a sharp rebound from the low in the early hours of this morning. At the end of the New York session on Wednesday, the yen surged by more than 450 points.

Yujiro Goto, head of Japan's foreign exchange strategy at Nomura Securities, said that the sharp rise in the yen in the early morning was probably due to the Japanese authorities interfering in the foreign exchange market. They took advantage of the weak dollar and weak trading activity due to the failure of the Federal Reserve to make hawkish remarks. At around 4 a.m. Beijing time, after Federal Reserve Chairman Powell finished the press conference, the exchange rate between the US dollar and the yen plummeted below 154 yen. In the absence of any special news, only the yen fluctuated sharply, which is more likely to be government intervention. It is important that the US and Japan fall below 155 and approach the 150 level, so that Japanese importers can have a chance to buy on dips. Although data from the Bank of Japan and other sources needs to be verified, this round of trends may dampen speculators' interest in buying dollars, at least in the short term.

“U.S. interest rates and the dollar fell after Powell's speech, but the yen did not fluctuate much, so the Japanese authorities may try to intervene again in the lackluster market before and after the New York close,” said Takafumi Onodera, head of sales and trading at Mitsubishi UFJ Trust Bank in New York.

Nathan Thooft, global chief investment officer and senior portfolio manager of Manulife Investment Management (Manulife Investment Management)'s multi-asset solutions team, said, “This certainly has the characteristics of intervention. “Repeated attempts will definitely send a message to the market. Although the intervention may not be fully established, it should have some impact on preventing a further sharp weakening of the yen.”

Kyle Rodda, senior financial market analyst at Capital.com based in Melbourne, said: “This caught the market off guard because it was clear that it happened during the US session and seemed to be scheduled with the FOMC schedule to take advantage of the weakening dollar. The 'sneak attack' is actually Japan's Ministry of Finance hoping to punish speculators and issue a warning about shorting the yen: blow them out and make them think twice next time.”

Despite this, as markets are fearful and in anticipation of action from the Japanese authorities, some say Wednesday's potential intervention may be the result of overly tight positions.

Martin Wheton, head of market strategy at Westpac Banking Corp (Westpac Banking Corp) in Sydney, said: “If you like conspiracy theories, then you might believe that an evil plan against the yen has been drawn up. But the reality is that this Monday is a holiday (the Japanese authorities are thought to have intervened on that day), US interest rate pricing has turned hawkish by Powell and the FOMC, and the tense state of the yen has reached its limit, so it's time to make a move.”

Japan's top currency official, Masato Kanda, said he had nothing to comment on when asked if Japan interfered with the yen exchange rate after the change in the yen exchange rate. This comment appears to be in line with Tokyo's strategy of trying to keep market participants ignorant and wary of its position to act. Earlier this week, Kanda warned that the authorities were ready to handle foreign exchange matters “24 hours a day”, that Japan's Ministry of Finance issued an intervention order, and the Bank of Japan executed the transaction.

For global traders, all signs point to one reason: Japan is tired of verbal persuasion and has taken action to defend its currency. Kristina Clifton, senior monetary strategist at Commonwealth Bank of Australia, wrote in a report: “Given strong fundamental factors such as large interest rate spreads between the US and Japan and healthy risk appetite, the Japanese authorities will face an uphill battle if Japan is to continue to strengthen.”

James Kniveton, senior corporate forex trader at Melbourne Convera said:

“As long as there is a huge gap between US and Japanese interest rates, the Bank of Japan's efforts to address these fundamentals may have limited effect. The market may view the depreciation of the USD/JPY exchange rate when the intervention occurred as an opportunity to buy on dips rather than a sign of trend reversal. The Bank of Japan does have a lot of firepower, but currently they are going against the water; if they don't advance, they are retreating. ”

Looking ahead, Japan will have a four-day holiday starting on Friday, and the London market will also be closed next Monday. The market may fluctuate sharply. This may also be a reason for Japanese currency officials to worry. If officials did intervene, this could be a motive for pre-emptive action.

editor/tolk