Yen rebounds after breaching fresh 34-year low amid intervention rumors

By Jamie Chisholm

The Japanese yen fell to a fresh 34-year low to the dollar early Monday, but then rallied sharply amid trader jitters that Tokyo had intervened to support its beleaguered currency.

With Japan's markets closed for Showa Day, thin trading in Asia saw the USD/JPY (USDJPY) cross swiftly jumping by two yen to burst above 160, the yen's weakest level against the greenback since 1990.

This took the USD/JPY to a gain of around 12% already this year, with the buck appreciating against the yen in response to widening bond yield differentials.

The U.S. 2-year Treasury yield is up 75 basis points in 2024 to 5% after signs of sticky inflation and sturdy economic data pushed pack the chances of rate cuts by the Federal Reserve.

In contrast, the 2-year Japanese government bond is yielding just 0.3% as the Bank of Japan keeps borrowing costs at 0.1% as it fears another slide back into deflation. The latest yen weakness comes after the BoJ on Friday left policy unchanged.

The Japanese authorities in recent weeks have warned that the yen's decline had gone too far and hinted they might enter the market to support it.

And shortly after the USD/JPY surged above the 160 mark on Monday it fell sharply, at one point dropping to 155. By the time Europe's forex dealers took to their desks the cross had stabilized around 156.80, down 0.9% on the day.

Japan's top currency official Masato Kanda was reportedly tight-lipped on whether the Ministry of Finance had intervened in the market, saying: "No comment for now."

Stephen Innes, managing partner at SPI asset Management said it appeared the MOF had intervened, but noted the impact was relatively temporary. "Despite initial selling pressure on the dollar hitting 155 , USD/JPY quickly rebounded to levels seen just after the Bank of Japan's [Friday] decision."

"Nevertheless, the core drivers of the USD/JPY pair remain largely unchanged. The currency pair is highly sensitive to movements in US 10-year yields, with the yield differentials still favoring the dollar by a country mile," Innes added.

-Jamie Chisholm

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04-29-24 0311ET

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