Forex
Japan keeps markets guessing on yen intervention, warns against sharp falls
© Reuters. FILE PHOTO: Japan’s vice minister of finance for international affairs, Masato Kanda, poses for a photograph during an interview with Reuters at the Finance Ministry in Tokyo, Japan January 31, 2022. Picture taken January 31, 2022. REUTERS/Issei Kato/Fil
By Tetsushi Kajimoto and Leika Kihara
TOKYO (Reuters) -Japanese authorities refrained on Wednesday from disclosing whether they had stepped into the market to prop up the yen and stressed their resolve to act against excess volatility, keeping markets on alert for the chance of yen-buying intervention.
After sliding below the psychologically important 150 per dollar mark to its weakest level in a year, the yen strengthened sharply on Tuesday, leading some market participants to believe Tokyo had intervened to support the currency.
Speaking to reporters, Finance Minister Shunichi Suzuki declined to comment on whether Tokyo had stepped in, and repeated that currency rates must move stably reflecting fundamentals.
“We’re ready to take necessary action against excess volatility, without ruling out any options,” Suzuki said, a view echoed by top currency diplomat Masato Kanda.
In a sign of the government’s growing alarm over the yen’s weakness, Kanda said he met Prime Minister Fumio Kishida later on Wednesday to “discuss the economy in general.”
Kanda declined to say whether he discussed the yen with the premier, but told reporters after the meeting that any intervention would target volatility rather than yen levels.
The dollar stayed well off the 150-mark in Asia on Wednesday and stood at 148.93 yen in early European trading, as the remarks from Suzuki and Kanda, who are in charge of deciding whether and when to step in, kept investors on alert over intervention risks.
But it has depreciated around 12% so far this year, and some analysts questioned how long Tokyo can keep yen bears at bay.
“It’s uncertain whether Tuesday’s volatility was due to intervention. But judging from the government’s policy and from the tools left for Japan, the finance ministry is likely keen to step in,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities.
“When yen-selling pressure persists, the chance of intervention reversing the dollar/yen’s trend isn’t high.”
The Bank of Japan’s money market data showed Japan likely did not intervene in the currency market on Tuesday, though market players said they needed to look at data available on Thursday to confirm that.
UNDER PRESSURE
Japanese authorities are facing renewed pressure to combat the sustained depreciation of the yen, as investors confront the prospect of higher-for-longer U.S. interest rates while the Bank of Japan remains wedded to its super-low interest rate policy.
Highlighting the conflicting goals Japan is chasing, the BOJ conducted emergency bond buying on Wednesday to keep long-term rates from rising much and hurting the fragile economy.
The BOJ’s decision in July to allow long-term rates to rise more freely did little to reverse the yen’s downtrend, as markets focused on Governor Kazuo Ueda’s pledge to keep easy policy until durable growth in wage and inflation is foreseen.
Kanda brushed aside the view that authorities were trying to defend a certain yen level, saying that they look at various factors with a focus on market volatility.
“If currencies move too much on a single day or, say, a week, that’s judged as excess volatility,” Kanda said.
“Even if that’s not the case, if we see one-sided moves accumulate into very big moves in a certain period of time, that’s also excess volatility,” Kanda added. He declined to comment on whether the overnight yen moves were excessive.
But former BOJ official Hideo Kumano warned against taking the comments at face value, pointing out that Tuesday’s yen spike had the footprints of intervention.
“It’s a strong show of resolve by Japanese authorities that they won’t tolerate the yen’s decline below 150,” said Kumano, who is now chief economist at Dai-ichi Life Research Institute.
“By not disclosing whether they’ve intervened, authorities can instill caution in the market on what they could do next.”
While a weak yen gives Japanese exports a boost, it has been a headache for both policymakers and households alike, by inflating the cost of raw material imports.
With inflation already exceeding the BOJ’s 2% target for more than a year, the yen’s recent declines put pressure on the central bank when it meets for a rate review ending on Oct. 31.
“If the dollar/yen moves sharply above 150, the BOJ could push forward the timing of a policy tweak,” said Ryutaro Kono, chief Japan economist at BNP Paribas (OTC:) Securities, predicting that there was a slim chance the bank could act this month.
Tokyo last intervened to buy yen in September and October last year, when the currency eventually slumped to a 32-year low of 151.94 per dollar.
Investing.com – The US dollar was trading higher on Thursday, the first day of 2025 trading, on hopes that U.S. growth will beat peers, a more hawkish Fed stance and expectations for the incoming Donald Trump administration.
At 12.30 ET (5:30 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.8% higher to 109.170.
Dollar to remain in demand in 2025
The index rose 7% in 2024 as traders drastically cut back Fed rate-cut expectations in the wake of the projections of the policymakers after the December policy-setting meeting.
The US central bank projected just two 25 bp rate cuts in 2025 at its last policy meeting of the year, a sharp reduction from the four cuts it had indicated in September.
In fact, markets are currently only pricing in 42 bps of cuts from the US central bank in 2025, with the return of Donald Trump to the White House adding a degree of uncertainty given his policies of looser regulation, tax cuts, tariff hikes and tighter immigration are seen as both pro-growth and inflationary.
Focus turns to the release later in the session of weekly numbers as well as the December number, for clues towards the strength of the US economy.
In Europe, traded 0.9% lower to 1.0258, following the more than 6% drop in 2024.
Data released earlier Thursday showed that manufacturing activity in the eurozone declining at a faster rate at the end of the year, offering scant signals of an imminent recovery.
HCOB’s final , compiled by S&P Global, dipped to 45.1 in December, with the downturn broad-based as the bloc’s three largest economies – Germany, France and Italy – were stuck in an industrial recession.
Traders expected more interest rate cuts from the European Central Bank in 2025, with markets pricing in 113 basis points of easing, much more than the Federal Reserve.
This divergence in Fed & ECB policy “will push the euro to parity vs the dollar in the course of 2025,” said analysts at ABN Amro, in a note.
traded 1.2% lower to 1.2366, adding to the fall of 1.7% last year, but was nevertheless the best-performing G10 currency versus the dollar.
UK rose in December, according to mortgage lender Nationwide, jumping by 0.7% in monthly terms during December, following a 1.2% increase in November.
The resilience of the UK housing market has surprised many given indications of weakening activity across the wider economy, with prices ending the year 4.7% higher than their level of December 2023, up from 3.7% in November – the highest annual growth rate since late 2022.
The held interest rates unchanged last month after consumer prices rose above target, and this central bank is likely to remain more cautious than its eurozone counterpart in 2025.
Slowing Chinese manufacturing growth
In Asia, rose 0.6% to 7.3435, climbing to its highest level in over a year after data showed that the country’s manufacturing sector grew less than expected in December.
The reading came just days after government PMI data also showed weaker-than-expected growth in the manufacturing sector.
The prints ramped up concerns over a slowing economic recovery in China, with recent stimulus measures having provided only limited support.
traded 0.35% higher to 157.79, amid a mostly dovish outlook for 2025 from the Bank of Japan.
Investing.com– Most Asian currencies moved in a flat-to-low range on Friday, pressured by strength in the dollar as traders positioned for a slower pace of interest rate cuts by the Federal Reserve in 2025.
Regional trading volumes remained slim on account of the new year holidays, with Japanese markets remaining closed until next week.
The Chinese yuan was among the worst performers in Asia, hitting its weakest level in nearly 16 months as a Financial Times report said the People’s Bank of China will cut interest rates further in 2025.
The yuan, along with its regional peers, was also nursing steep losses in 2024, as the dollar benefited from a hawkish Fed and the prospect of protectionist policies under incoming President Donald Trump.
Dollar at 2-yr high as rate cut bets ease
The and fell 0.1% in Asian trade after racing to a fresh two-year high on Thursday.
The greenback’s latest round of gains came after weekly data read stronger than expected, indicating that the labor market remained strong. A strong labor market gives the Fed more headroom in considering future monetary easing.
The central bank signaled during its December meeting that it will cut interest rates at a substantially slower pace in 2025, citing concerns over sticky inflation.
Resilience in the U.S. economy also gives the Fed less impetus to cut rates, although the Atlanta Fed’s was revised lower for the fourth quarter on Thursday.
Chinese yuan weakens as PBOC flags more rate cuts
The Chinese yuan was among the worst performers in Asia, with the pair rising nearly 0.4% to 7.3275 yuan- its highest level since September 2023.
The FT reported that the PBOC will cut interest rates further in 2025, as the central bank pivots to a more conventional monetary policy structure under a singular benchmark interest rate.
The monetary policy reform comes as a slew of liquidity measures largely failed to stimulate China’s economy over the past two years. This is expected to elicit more monetary easing by the PBOC, which bodes poorly for the yuan.
The yuan was already nursing losses for the week, as purchasing managers index data released earlier showed slowing growth in China’s manufacturing sector.
Broader Asian currencies moved in a tight range, but were nursing steep losses in recent months as traders positioned for a slower pace of U.S. rate cuts in 2025.
The Japanese yen’s pair fell 0.1% after hitting an over five-month high in late-December.
The Australian dollar’s pair rose 0.2%, while the South Korean won’s pair fell 0.2% amid repeated assurances of financial stability from the government.
The Indian rupee’s pair steadied at 85.8 rupees after hitting a record high above 86 rupees earlier this week.
The British pound continued its historical trend of starting the year on a weak note, marking a seventh consecutive year of losses on the first trading day after New Year’s Day.
Deutsche Bank (ETR:) analysts noted that the pound fell over one percent today, contributing to a long-term pattern where sterling has only posted three positive returns on the first trading day of the past twenty years.
The bank’s analysis suggested that the pound’s performance is not isolated, as the Euro against the U.S. dollar () has shown a similar pattern, though slightly less pronounced. The movements in the Cable, the term used for the currency pair, often align with the repricing of relative interest rates at the start of the year.
However, today’s interest rate movements were minimal, despite a downward revision in the UK’s manufacturing PMI and more favorable unemployment claims data from the U.S.
Deutsche Bank attributed the additional underperformance of the pound to a “beta of the technical breaks” from last year, referencing the fall of the Euro to last year’s lows and the decline of the pound to multi-month lows.
The technical analysis suggests that these breaks in key support levels have contributed to the downward pressure on sterling.
Looking ahead, Deutsche Bank found no strong pattern that would indicate whether the initial losses of the pound on the first trading day would reverse or continue in the week following.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
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