Foreign exchange: yen gains ground against the dollar; market suspects intervention by Tokyo
(Il Sole 24 Ore Radiocor) - It was a turbulent session for the yen, which today saw a sudden appreciation against the dollar, fuelling speculation amongst traders that the Japanese authorities had intervened in the foreign exchange market. However, there has been no official confirmation of this. After gaining as much as 1.23 per cent, the Japanese currency then settled at around a 1 per cent rise, at 158.71 yen to the dollar. The movement occurred in the absence of any news that appeared sufficient to justify its intensity, and according to some analysts, this suggests that there may have been a
intervention by the central bank. According to some market participants, the authorities may have merely carried out a check on exchange rates at the major banks – a procedure (known as a ‘rate-check’) often seen as a precursor to intervention. The request does not involve currency purchases, but signals to the market that the government may be ready to act. The yen had already started the session on a higher note, buoyed by growing expectations of a further rate rise by the Bank of Japan at its meeting on 17 and 18 September. Governor Kazuo Ueda stated that, with core inflation approaching 2 per cent, the central bank must pay greater attention to upside risks to prices. Board member Hajime Takata also spoke in favour of timely and flexible rate rises. These comments helped push the yield on two-year Japanese government bonds to its highest level since 1995. These expectations were reinforced by US Treasury Secretary Scott Bessent, who, during a meeting with Ueda at the G20, called for decisive monetary measures to counter the weakness of the yen and contain inflationary pressures.
The prospect of higher interest rates is supporting the currency, but so far this has not been enough to reverse its downward trend on a sustained basis. Japan, which is heavily reliant on energy imports from the Middle East, is feeling the impact of rising oil and gas prices. By the end of July, the yen had fallen to 163.98 to the dollar – its lowest level in around forty years – before joint intervention by Japan and the United States. The currency subsequently recovered to 155.21, only to lose ground again.
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