dailynewsnblog
SINGAPORE, Jan 25 (Reuters) – Foreign exchange markets will start the week on edge about the possibility of official yen buying following the currency’s spike on Friday and a weekend pledge by Japanese Prime Minister Sanae Takaichi to act against speculative market moves.
The low-liquidity hours early in Asia’s Monday morning will likely be particularly jittery with a holiday in Australia further thinning trade, which can exaggerate moves.
Short sellers are already nervous after the yen finished Friday with its sharpest rise in nearly six months to 155.73 per dollar, and would likely be wiped out by an intervention.
After sliding towards 160 to the dollar, where markets think intervention is a risk, the yen rebounded on Friday after the New York Federal Reserve conducted so-called rate checks, a move some traders saw as heightening the chance of joint U.S.-Japan intervention to halt the currency’s slide.
If supported by U.S. authorities, the buying would be the first joint move since Group of Seven (G7) countries sold yen in 2011 after the massive Tohoku earthquake in a bid to restrain a surge in the yen.
This time the yen has been sliding for years. It is not far from multi-decade lows on the dollar and its slump has been drawing increasingly strong complaints from officials, who say it is beginning to hurt the economy.
On Friday, the yen zoomed higher twice – once, suddenly, in the London morning, and again in the New York session. A source told Reuters the New York Fed had carried out rate checks, a precursor to entering the market.
Then on Sunday, Takaichi said the government “will take necessary steps against speculative or very abnormal market moves”, without specifying which market she was referring to.
A MAR-A-LAGO ACCORD?
The weak yen has become a source of headaches for Japanese policymakers as it pushes up import costs and broader inflation, hurting households’ purchasing power.
It has lost more than 5% on the dollar since Takaichi took charge of Japan’s ruling party and bond yields have soared, on concern her government’s spending plans demand more borrowing.
Last week the yen touched record lows against the euro and Swiss franc, before rebounding, and traders think it could rally beyond Friday’s closing price of 155.73 per dollar if markets see prospects of U.S.-Japan buying.
“Then, efficacy of future actual intervention, if any, will likely be more significant,” said Nomura analyst Yusuke Miyairi.
Japanese Finance Minister Satsuki Katayama said earlier in January she and U.S. Treasury Secretary Scott Bessent shared concerns over what she called the yen’s recent “one-sided depreciation”.
