The yen briefly weakened beyond 150 against the dollar again in early Asian trading on Monday as the wide yield gap between Japan and the US continued to weigh on the currency, keeping traders on guard against possible intervention from authorities in Tokyo.
The Japanese currency slid to 150.11 per the greenback before quickly recovering amid weight from options-related dollar selling. It was at 149.85 as of 5:37 a.m. Tokyo time.
The depreciation through the psychological level of 150 puts investors on alert about the possible intervention after Finance Minister Shunichi Suzuki said on Friday that it is important to have stability in foreign exchange markets and for them to reflect fundamentals. He refrained from commenting on the current level of yen.
Traders are also on tenterhooks given tensions in the Middle East, elevated US Treasury yields and a Bank of Japan policy meeting approaching on Oct. 30-31. Safe havens including the dollar, the yen and the Swiss franc remained in focus Monday following news that an airbase in Iraq that hosts US and international forces was targeted overnight by rockets in an ongoing escalation of hostilities drawing in regional militia.
The US Treasury 10-year yield at 4.91% is almost six times of Japan’s equivalent at 0.835%. BOJ Governor Kazuo Ueda said Friday that the bank will continue patiently keeping policy easy in order to achieve its goal of stable and sustainable 2% inflation.
Meanwhile, investors are also digesting a Nikkei report that the BOJ began to discuss the possibility of another tweak to its yield curve control settings as long-term rates are rising in tandem with those in the US. The report didn’t say where it got the information.
The yen went to 150.16 on Oct. 3 before rapidly recovering to 147.43, stoking speculation that Japan had entered the market to prop up the currency. Senior government officials stuck to a strategy of keeping investors guessing on the following day by declining to clarify whether they had intervened.
Japan spent around ¥9 trillion ($60 billion) in September and October last year across three occasions in their first intervention to support the yen since 1998. Japan’s chief currency official Masato Kanda has said that as a general principle, rate hikes and interventions are ways to respond to excessive currency moves. He has vowed to take action if needed against excessive swings, but declined to say whether recent market moves were speculative.
Still, the International Monetary Fund has said that it sees no factors that would compel Japan to intervene in the foreign exchange market to support the yen.
The diverging monetary policy outlooks and widening yield gap with overseas markets are putting downward pressure on the yen, which is the worst performing Group of 10 currency this year versus the dollar.
Author: Yumi Teso and Michael G. Wilson