Forex
Instant view: Japanese yen surges, ringing intervention alarm bells
(Reuters) – The Japanese yen surged nearly 3% on Thursday in its biggest daily rise since late 2022, a move that local media attributed to a round of official buying to prop up a currency that has languished at 38-year lows.
The dollar dropped to as low as 157.40, straight after data showed U.S.consumer inflation cooled more than expected in June.
Yet the scale and speed of the move put traders on alert to the possibility of Japanese intervention. Authorities stepped in as recently as early May to bolster the yen.
Domestic news service Jiji cited top currency diplomat Masato Kanda as saying he could not comment on whether or not there was an intervention, but that recent moves in the yen were “not in line with fundamentals”.
COMMENTS:
MICHAEL BOUTROS, CHIEF TECHNICAL STRATEGIST, FOREX.COM, NEW YORK
“I find it hard to believe there was someone sitting there waiting for that, to throw fuel on the fire. It would be a really strategic move, but I just don’t think that’s how they operate. More so than the nominal level… their assertion has always been the speed of the move. So there was nothing here today, this week, that would suggest something would spark this move all of a sudden for them to jump in.”
“I’m treating this right now as proper market mechanics. It’s been a strong uptrend. We need these pullbacks. These pullbacks are healthy within uptrends. Even on basic technical standards you’re seeing divergence on the weekly chart in momentum, we’ve been tracking this on the daily chart as well, so its been looking for catalysts in my opinion, and all we needed was that weak print… not only is price action correcting lower because of dollar weakness, but also we’re repricing the interest rate divergence lending to that carry trade unwind as well, and we’ll see if that unwind leads to a larger trend reversal.”
GARRETT MELSON, PORTFOLIO STRATEGIST, NATIXIS, BOSTON
“Just looking at the charts and listening to some of the chatter – seems pretty likely the MOF did intervene this morning after the CPI print. Vice Finance Minister Kanda with a typical refusal to answer to whether or not there was intervention, but the first leg down for the JPY was right at the CPI print after which it stabilized before the next larger leg lower about 10 minutes later.”
“Again, very possible the fundamentals are a key driver here given extended positioning, but looking closer at the timing of the moves with the MOF’s no-comment seems like an admission of some action taking place.”
PAULA COMINGS, HEAD OF FX SALES, U.S. BANK, NEW YORK
“The focus in the coming days will be how today’s movement impacts overall volatility for corporates that are hedging both long JPY revenues and short JPY expenses.
“We sailed through the technical level we were watching at 158.26, which we hit on June 20. The next level down would be 155.70, which was the low on June 12.
“This is a strange time in the market where an argument can be made that there are opportunities to enter into options-based strategies at favorable rates and/or prices to either buy or sell JPY.”
ATHANASIOS VAMVAKIDIS, GLOBAL HEAD G10 FX STRATEGY, BOFA GLOBAL RESEARCH, LONDON
“I think it was just the reaction to the weak US CPI and the squeeze of the market long USD positioning. The USD weakened across the board, but more so against the JPY because of positioning.”
CHRIS SCICLUNA, HEAD OF ECONOMIC RESEARCH AT DAIWA CAPITAL MARKETS, LONDON
“The MOF won’t confirm this for some time but the extent of the move gives a strong impression that it has been active and taken advantage of the post U.S. CPI data to take action.”
HELEN GIVEN, FX TRADER, MONEX USA, WASHINGTON DC
“Traders have speculated for the last couple of months that any potential intervention from Japanese currency officials may be financed by the sale of their US treasury holdings, so any substantial move lower there is going to impact JPY more than other G10 currencies.
“We’ll have to see, of course, whether today’s big move for JPY holds up over the next week or so, but this is definitely good news for BoJ as speculation on if and when they may intervene on behalf of the flailing currency has plagued markets consistently for the last month.”
SAMEER SAMANA, SENIOR GLOBAL MARKETS STRATEGIST, WELLS FARGO INVESTMENT INSTITUTE, CHARLOTTE, NORTH CAROLINA
“With CPI doing what it’s doing, it’s hard to kind of disentangle the two. Given the fact that the biggest portion of the move happened around the time that CPI was released, I would say it’s more CPI than intervention. It is possible they did something overnight.”
GEOFF YU, SENIOR MACRO STRATEGIST, BNY MELLON, LONDON:
“Our view is that rate differentials are clearly converging as a September (U.S.) rate cut is priced in.”
“Hard data also shows yen shorts are the strongest in almost three years and quite extreme so there’s no resistance to the upside.”
MARC CHANDLER, CHIEF MARKET STRATEGIST, BANNOCKBURN GLOBAL FOREX, NEW YORK
“I’d be surprised if they are, partly because of the time zone and partly because the dollar is responding to fundamentals as we would expect – softer CPI, lower U.S. rates, and of course dollar/yen falls… I think the market got caught leading the wrong way.”
“I think there’s three broad conditions. Volatility, and volatility is not very high, it wasn’t going into today. Secondly, I think they care about a one-way market, and it hasn’t been really a one-way market for a couple of weeks. And thirdly, I think about how the dollar reacts to fundamentals, and this is responding in line with fundamentals. So, the three broad criteria I don’t think are met.”
GIUSEPPE SERSALE, PORTFOLIO MANAGER, ANTHILIA, MILAN
“The yen is currently making fireworks. Honestly, I couldn’t say exactly what’s driving it. If the movement persists, it could mean that short-term positioning was too skewed towards short yen. And this US data created a situation where there was a violent rebound and a series of stop losses for those short on yen.”
“If, however, the movement deflates, halves during the day, or becomes very erratic, it means there was also a contribution from the Japanese Treasury, who at this moment doesn’t admit it… the move however seems excessive since the euro is gaining half a point, the pound is gaining half a point, and so on. Therefore, I have the impression that there is also a bit of contribution from the Japanese.”
JAMES MALCOLM, HEAD OF FX STRATEGY, UBS LONDON:
“My personal guess is that this is not intervention.”
“The thing is the market position is so, so extended that it can feed on itself very, very easily, Regardless of whether you think it should be stabilising, if dollar-yen is dropping and you’re long, you have to get out… that’s the definition of a classic carry unwind.”
“There is an incentive to perhaps to do a little bit of intervention later in the day to ensure it doesn’t rebound.”
KENNETH BROUX, HEAD OF CORPORATE RESEARCH FX AND RATES, SOCIETE GENERALE
“It’s certainly a big move but I don’t think we can say it’s anything to do with intervention,” said Societe Generale (OTC:)’s head of corporate research FX and rates Kenneth Broux.
“The US CPI has been a trigger and it’s more about stops being triggered than intervention,” he said.
STEVE ENGLANDER, HEAD, GLOBAL G10 FX RESEARCH AND NORTH AMERICA MACRO STRATEGY, STANDARD CHARTERED BANK NY BRANCH, NEW YORK
“Obviously the yen story has been a rate differential story and positions – long dollar/yen positions – have piled up. So when you get a number that’s this definitive in terms of making, say, September highly probable and kind of reinstating the disinflation story, that rate differential story erodes. Most likely it was cleaning up of positions because my sense from clients, especially short-term traders, is that everybody had some long dollar/yen on that they were thinking that maybe 165 or higher was kind of where it was headed.”
“There’s some vague speculation on intervention, just everybody’s looking at the price chart and kind of saying, oh, that’s, kind of a sharp drop so maybe could have it been. The answer is it could have, but I’d say most likely its position squaring rather than any official moves.”
LEE HARDMAN, SENIOR FX STRATEGIST, MUFG, LONDON
When the market is heavily positioned in one direction and then it goes the other way it can trigger this kind of abrupt move. Dollar/yen long positioning was very stretched
COLIN ASHER, SENIOR ECONOMIST, MIZUHO, LONDON
“Most likely, it’s just short covering, as speculation of US rate cuts on the horizon build in the wake of the negative CPI print.”
” is the G10 pair where positioning is most stretched.”
“It’s certainly a sizable move, with the intra-day range the biggest since the intervention at the start of May.”
Investing.com – The US dollar edged higher Monday, rebounding after the sharp losses at the end of last week on signs of cooling inflationary pressures, while the euro slipped following dovish comments from ECB head Christine Lagarde.
At 05:00 ET (10:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.4% higher to 107.750, after falling sharply from a two-year high on Friday.
Dollar bounces after sharp retreat
The dollar bounced Monday after falling sharply on Friday as the Federal Reserve’s preferred showed moderate monthly rises in prices, with a measure of underlying inflation posting its smallest gain in six months.
That eased some concerns about how much the may cut in 2025, which had risen following the hawkish US rate outlook after the last Fed policy meeting of the year.
That said, traders are pricing in 38 basis points of rate cuts next year, shy of the two 25 bp rate cuts the Fed projected last week, with the market pushing the first easing of 2025 out to June, with a cut in March priced at around 53%.
Trading volumes are likely to thin out as the year-end approaches, with this trading week shortened by the festive period.
Eurozone “very close” to ECB inflation goal
In Europe, fell 0.1% to 1.0414, near a two-year low it touched in November, down 5.5% this year, after European Central Bank President said the eurozone was getting “very close” to reaching the central bank’s medium-term inflation goal.
“We’re getting very close to that stage when we can declare that we have sustainably brought inflation to our medium-term 2%,” Lagarde said in an interview published by the Financial Times on Monday.
Earlier in December, Lagarde had said the central bank would cut interest rates further if inflation continued to ease towards its 2% target, as curbing growth was no longer necessary.
The lowered its key rate last week for the fourth time this year, and is likely to cut interest rates further in 2025 if inflation worries fade.
traded largely flat at 1.2571, after data showed that Britain’s economy failed to grow in the third quarter, adding to the signs of an economic slowdown.
The Office for National Statistics lowered its estimate for the change in output to 0.0% in the July-to-September period from a previous estimate of 0.1% growth.
The ONS also cut its estimate for growth in the second quarter to 0.4% from a previous 0.5%.
policymakers voted 6-3 to keep interest rates on hold last week, a bigger split than expected, amid worries over a slowing economy.
Yuan hits one-year high
In Asia, rose 0.2% to 156.72, after rising as far as 158 last week following dovish signals from the .
The BOJ signaled that it was not considering interest rate hikes in the near-term despite a recent pick-up in inflation, and could raise rates by as late as March 2025.
edged 0.2% higher to 7.3080, hitting a one-year high as traders continued to fret over China’s economic outlook. While Beijing is expected to ramp up fiscal spending in the coming year to support the economy, looser monetary conditions are expected to undermine the yuan.
Investing.com– Most Asian currencies moved little on Monday, while the dollar steadied from a tumble from over two-year highs after soft U.S. inflation data spurred some hopes that interest rates will still fall in 2025.
Asian currencies were nursing steep losses against the dollar from last week, although they trimmed some declines on Friday after the soft inflation data. The outlook for regional markets also remains clouded by uncertainty over U.S. interest rates and policy under incoming President Donald Trump.
Dollar slips from 2-yr high as PCE data misses expectations
The and both steadied on Monday after clocking sharp losses on Friday.
The greenback slid from an over two-year peak after data- the Federal Reserve’s preferred inflation gauge- read softer-than-expected on Friday.
Still, the reading remained above the Fed’s 2% annual target, keeping uncertainty over interest rates in play.
The Fed had cut interest rates by 25 basis points last week, but flagged a slower pace of interest rate cuts in the coming year, citing concerns over sticky inflation and resilience in the labor market.
The Fed is expected to cut rates twice in 2025, although the path of rates still remains uncertain.
Markets took some relief from the government avoiding a shutdown after lawmakers approved an eleventh-hour spending bill.
Asia FX pressured by rate uncertainty
Despite clocking some gains on Friday, most Asian currencies were still trading lower for December, as the outlook for interest rates remained uncertain.
The Japanese yen’s pair rose 0.1% to around 156.59 yen, after rising as far as 158 yen last week following dovish signals from the Bank of Japan.
The BOJ signaled that it was not considering interest rate hikes in the near-term despite a recent pick-up in inflation, and could raise rates by as late as March 2025.
The Chinese yuan’s pair rose 0.1%, hitting a one-year high as traders continued to fret over China’s economic outlook. While Beijing is expected to ramp up fiscal spending in the coming year to support the economy, looser monetary conditions are expected to undermine the yuan.
The Singapore dollar’s pair was flat ahead of inflation data due later in the day, while the South Korea’s won’s pair rose 0.3%.
The Australian dollar’s pair rose slightly after sinking to a two-year low last week.
The Indian rupee’s pair steadied after hitting a record high of over 85 rupees last week.
Investing.com — The dollar recently notched fresh year-to-date highs against its rivals and is likely to remain strong after the Federal Reserve leaned more hawkish at its recent December meeting, analysts from UBS said in a recent note.
“While we still expect the dollar to fall, we now see less weakness in 2025 given these factors and adjust our forecasts slightly,” analysts from UBS said in a recent note.
The less bearish view on the USD comes in the wake of the greenback making fresh year-to-date highs in key exchange rates and the expectations for fewer U.S. rate cuts.
“The USD has been driven lately by prospects of fewer Fed rate cuts and tariff risks,” the analysts said.
The euro has been particularly affected by dollar strength, but is expected to trade around $1.05 against the greenback in the first half of 2025, the analysts forecast.
But a significant drop toward parity for the can’t be ruled out, “due to real tariff threats or further divergence in the macro backdrop between the US and Europe,” the analysts added.
Still, any move toward parity should be short-lived, the analysts said, amid expectations for the economic backdrop in Europe to improve in the second half of the year, narrowing the divergence between Europe and U.S. yields.
“The trajectory back into the middle of the trading range or higher, 1.08 to 1.10, comes with the view that two-year yield differentials will still narrow to some degree and better macro data out of Europe provide some underlying support for EURUSD in 2H25,” the analysts said.
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