On October 22, the dollar against the yen closed down 1.69% to 147.60, the largest one-day decline in more than two months; the yen fell 0.76% this week, ending the previous nine consecutive weekly gains. Traders and strategists said Japanese authorities could be in the market to prevent the country’s battered currency from plunging. At the same time, Fed officials said earlier that it is time to start talking about slowing the pace of interest rate hikes, and the dollar’s retreat from its highs supported the yen’s strength.
According to the Nikkei, the Japanese government and the Bank of Japan bought yen and sold dollars to intervene in the currency market, a move that came as USD/JPY breached 151 for the first time in 32 years. Previously, the Japanese authorities once again showed their attitude to prevent excessive changes in the yen exchange rate. The Japanese government and the Bank of Japan implemented foreign exchange intervention for the first time in 24 years on September 22, and this time it was an additional intervention.
Mazen Issa, senior currency strategist at TD Securities, said: “I think it was intervention, we saw a lot of dollar selling, traders said more than $10 billion was sold. The yen jumped almost in a straight line, and the shorts were Squeeze. It is clear that the Ministry of Finance is selling dollars and buying yen. They are trying to defend their very accommodative policy firmly. A lot of people have been looking at 150 yen as a key level that could trigger intervention, after the authorities Let USDJPY drop below that level, basically at 152, and then they intervene at a very illiquid time, basically when people in London are going home for the weekend, which seems to give speculators a boost As much pain as possible, they like to use that word.”
Mark Chandler, analyst at Bannockburn Global Forex, said: “Some traders were surprised that Japanese authorities were skeptical about the intervention of the Japanese authorities at U.S. time. Combined conditions led to an immediate unwinding of yen sell positions and price volatility.”
Japanese authorities have repeatedly said they will respond to the unilateral movement of the yen pair, but some analysts have warned that as long as the Bank of Japan maintains its policy of extremely low interest rates while central banks in other countries are raising rates, any intervention The impact of the measures will be limited. Alan Ruskin, chief international strategist at Deutsche Bank, said all market discussions were about Japanese authorities intervening. In the current situation, the intervention is only a short-term relief.
(Yen hourly chart)
Just before the intervention, U.S. long-term interest rates were falling, and speculation about a narrowing of the Japan-U.S. spread began to spread in foreign exchange markets. A Wall Street Journal report triggered a drop in U.S. long-term interest rates. The report said that the Fed may consider hinting at a reduction in the rate hike in December, raising expectations for a slowdown in the Fed’s rate hike this year. The U.S. long-term interest rate fell from 4.33% to 4.20% in the early morning.
The dollar index was at 112.17, down 0.7%, after hitting a three-week high of 113.95 earlier in the session. The Wall Street Journal reported that Fed officials firmly supported another 75 basis points of interest rate hikes at their November meeting, while some officials have begun to signal that they want to slow the pace of rate hikes as soon as possible. Fed officials are likely to discuss whether and how to signal a smaller rate hike planned for December.
San Francisco Fed President Mary Daly said on Friday that the U.S. central bank should avoid pushing the economy into an “unforced recession” by raising interest rates too far, and now is the time to start talking about slowing the pace of rate hikes. We may be adding another 75 basis points and the market has definitely priced in that. But really advise people not to think that 75 basis points of rate hikes will go on forever. But she also showed that it’s really challenging to slow down right now… we’re not there yet.
The U.S. dollar index remains near 20-year highs despite a pullback on Fed-related news. “It’s really hard to bet that the Fed won’t need to continue to be quite aggressive. That ultimately means we’re still going to see the dollar move up,” said Bipan Rai, head of North American FX strategy at CIBC Capital Markets.