FXNEWSTODAY – •Japanese yen drops to its highest level in three weeks
•The Japanese yen posted its biggest weekly gain since 2022
•Japanese and United Kingdom holidays keep traders alert
•The Bank of Japan may intervene again in line with a calm period strategy
The Japanese yen fell against a basket of major and minor currencies in Asian markets on Monday, giving up its highest level in three weeks against the US dollar to start the new week trading in negative territory, where a correction helped the currencies’ relative performance and gain- after last week’s biggest weekly gain of 17 in a month.
The current decline in Japanese yen levels, especially as it comes during a public holiday in Japan and the United Kingdom, puts traders on alert that Japan may intervene again to support the local currency, according to a strategy that exploits quiet periods in the forex market.
Price view
•Today’s Japanese Yen Exchange Rate: Up more than 0.6% from the opening price of (¥152.93¥) to (¥153.86¥) and recorded a low of (¥152.75).
• The yen ended Friday trading up 0.4% against the dollar, its third consecutive daily gain, to hit a three-week high of 151.86 yen. The labor market in the United States.
The data raised the possibility of two cuts in interest rates by the Federal Reserve in September and November, which would put negative pressure on the US dollar.
Huge profit every week
Over the past week, the Japanese yen gained 3.5% against the US dollar, its first weekly gain in five weeks and its biggest weekly gain since November 2022.
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Thanks to the Japanese authorities from the bottom to the top of the yen!
Besides buying from a 34-year low of 160.21 yen per dollar, the Bank of Japan has intervened in the foreign exchange market at least twice to support the local currency against excessive weakness.
The gains were also supported by the 10-year yield falling to a three-week low after gloomy labor market data in the US renewed hopes that the Federal Reserve would cut interest rates this year.
The Bank of Japan’s intervention strategy
Traders suspect the Japanese central bank intervened in the foreign exchange market for at least two days last week by buying large amounts of yen, especially after it traded below the 160 yen barrier to the dollar for the first time since 1990.
The Wall Street Journal reported that Japanese financial authorities have already intervened in the foreign exchange market, citing people familiar with the matter.
The suspected intervention occurred on Monday, a Japanese holiday, and after the close of Wall Street stock markets on Wednesday, as the current intervention strategy focuses on operating during periods of very weak market liquidity.
A strategy of currency intervention obviously has more impact during calmer periods, giving the Japanese central bank more leverage to support the local currency.
How did the Bank of Japan intervene in the foreign exchange market?
During the Japanese holiday last Monday, the U.S. dollar hit a 34-year high of 160.21 yen in the Asian market, before falling back to 154.40 at the start of the European market, a loss of more than 3.5 per dollar. % against the yen, and aside from earlier rounds of intervention, the dollar has only fallen sharply on a handful of occasions in recent years.
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In the U.S. late Wednesday, the U.S. dollar suddenly fell 1% in five minutes, and fell another 2% within half an hour to hit its lowest level of the day. The yen rallied more than 2.0% against the dollar for the entire trading day, with the largest daily gain in 2024, especially since December 7, 2023.
CME Group data showed yen spot trading volume on the EBS platform hit $77 billion on Monday, the highest level since November 2016. And that volume hit $42 billion on Wednesday, accounting for 78% of that volume, data showed. An hour late from New York.
A London-based trader, who asked to remain anonymous, told Reuters: Volatility came at times of lack of liquidity, adding to tensions ahead of some holidays between now and next Monday.
Also possible interference
As per the current intervention strategy, Monday’s public holiday in Japan and the United Kingdom (the world’s largest forex trading center) could provide a window for further intervention by the Bank of Japan.
Expectations of Japanese Yen Performance
• Strategists at Goldman Sachs (NYSE: ) said: While Japan has the potential to intervene further, the broader macro environment is still very negative for the yen. They indicated that the “success” of the BOJ’s intervention could not go further.
Strategists added: But buying time is still more valuable because it reduces the possibility of economic disruptions as a result of an exchange rate adjustment, and leads to currency stability until the economic backdrop turns in favor of the Japanese yen.
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