The sudden jump of the yen against the dollar on Monday took traders by surprise, with many attributing it to yen-buying intervention by Japanese authorities. This move was aimed at boosting the currency, which has been struggling near 34-year lows. The dollar experienced a sharp decline to 156.55 yen from its earlier high of 160.245. Trade sources reported that Japanese banks were actively selling dollars in exchange for yen.
Traders have been anticipating actions from Tokyo to support the yen, which has already depreciated by 11% against the dollar this year. Despite a previous exit from negative rates, the currency has failed to gain momentum. The Ministry of Finance in Japan did not comment on the intervention as the country was closed for a holiday on Monday. Bank of Japan governor Kazuo Ueda emphasized that monetary policies do not directly target currency rates, although exchange-rate fluctuations could have a significant economic impact.
Japan’s recent intervention in the currency market marks the third time in 2022 that the country has sold the dollar to purchase yen. This move was first observed in September and then repeated in October as the yen approached a 32-year low of 152 to the dollar. The yen has been under pressure due to the increasing interest rates in the United States compared to Japan’s near-zero rates. This divergence has led to capital outflows from yen into dollars in pursuit of higher yields.
In an unusual development, the United States, Japan, and South Korea agreed to “consult closely” on currency markets earlier in the month. This joint effort aimed at addressing the potential impact of exchange-rate fluctuations. Japan has also ramped up its rhetoric against excessive movements in the yen to stabilize the currency market. These collaborative efforts signal a proactive approach to managing currency fluctuations and ensuring stability in the global economy.
The recent yen-buying intervention by Japanese authorities highlights the ongoing challenges faced by the currency in the global markets. Despite multiple attempts to boost the yen’s value, external factors such as interest rate differentials continue to influence its performance. Collaborative efforts among major economies to address currency market dynamics demonstrate a commitment to maintaining stability and fostering sustainable economic growth.