3 weeks ago
Yen Weakens 1%, Erases Half of Intervention Gains
The yen is Japan's money.
Its value changes depending on how many people want to buy it.
When lots of people prefer dollars, the yen becomes weaker.
Japan and the United States worked together to buy yen and give it a boost, the first time they teamed up since 1998.
That helped the yen get stronger for a little while.
But then the yen started going down again, losing half of the boost.
It fell to about 159 yen for one dollar.
Experts say the yen will probably keep drifting lower unless officials step in again.
Japan's central bank may raise interest rates to help, but traders are not sure it will be enough.
The yen fell as much as 1% to 159.35 per dollar, erasing half of the gains from the US-Japan coordinated intervention and marking the worst G-10 performance.
Japan and the US carried out their first coordinated yen-buying intervention since 1998 after the yen slid to a four-decade low near 164 per dollar.
The yen has weakened about 0.5% against the dollar in August, reversing part of a 3.2% gain in July, and now trades weaker than 158 per dollar.
Authorities likely spent about $34 billion on July 31 and an estimated $53 billion the prior day, potentially the largest single-day intervention on record.
The Bank of Japan flagged rising inflation risks; traders priced roughly 63-66% odds of a rate hike by September, with articles differing slightly on the figure.
- Who
- Japanese and US monetary authorities, the Bank of Japan led by Governor Kazuo Ueda, and currency traders, with strategists at Goldman Sachs, Nomura Securities, State Street, Bank of America and Pioneer Investments watching closely.
- What
- The yen weakened as much as 1% to 159.35 per dollar, erasing half of the gains from the US-Japan coordinated intervention and underperforming all G-10 peers.
- Where
- Japan and the US, in global foreign-exchange markets.
- When
- August, on a Monday following the early-August coordinated intervention; estimated central bank actions occurred on July 31 and the preceding day.
- Why
- Wide interest-rate differentials with the US, concerns over Japan's fiscal outlook and geopolitical uncertainty continue to weigh on the yen.
Authorities' Position
Market Strategists' Position
Effectiveness of yen intervention
Authorities' Position
Japanese and US officials warn they are prepared to act again to support the yen if needed, after carrying out the first coordinated intervention since 1998.
Market Strategists' Position
Strategists at Goldman Sachs and Nomura say the muted response reflects fundamental reasons for the yen's weakness, and they expect depreciation pressures to reemerge without a shift in global conditions or a policy surprise.
Path to a stronger yen
Authorities' Position
Officials signal readiness for further official action, and traders are wary that thin liquidity during Japan's holiday could create conditions for another intervention.
Market Strategists' Position
Bank of America's Alex Cohen says a stronger yen would take either a 'more forceful' intervention or BOJ signals of a September rate hike; Pioneer Investments' Paresh Upadhyaya says a September hike alone is 'just not enough.'
Key facts
- Yen move in August
- Weakened about 0.5% against the dollar
- Monday's decline
- As much as 1%, touching 159.35 per dollar
- Yen gain in July
- 3.2%
- Four-decade low
- Near 164 per dollar in late July
- Post-intervention peak
- Around 155 per dollar
- July 31 intervention estimate
- About $34 billion
- Prior day intervention estimate
- About $53 billion, potentially the largest single-day on record
- Market-priced BOJ hike odds by September
- About 66% in one report; about 63% in another
Quotes
Goldman Sachs Group Inc. strategists
Analysts at Goldman Sachs Group Inc.
“Without fresh intervention, it will continue to drift lower. It seems that the market is disappointed that we didn’t see more intervention.”
livemint.com
“I’m skeptical we can see a much stronger yen unless it is followed up by stronger policy action. A September rate hike is just not enough.”
livemint.com
Sources
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