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On Thursday, the Japanese yen reached a six-week high, fueling speculation about possible government intervention. This development comes as the dollar faces widespread declines in anticipation of potential U.S. interest rate cuts in the coming months.
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The euro also saw a notable increase, maintaining a position close to its four-month high of USD 1.094, while the British pound remained stable at USD 1.3007, slightly below its one-year peak reached overnight.
The significant rise in the yen began on Wednesday, continuing into the early hours of Thursday with a further 0.5% increase to 155.37 per dollar. This movement in the yen is attributed to potential actions by Japanese authorities, as suggested by Bank of Japan money market data indicating nearly 6 trillion yen purchases last week.
Traders consider this a sign of further intervention, or at the very least, an indicator of market nerves about such prospects. “Many traders and Japanese investors, after intervention, were looking to reload on their trades,” said Rodrigo Catril, a strategist at National Australia Bank in Sydney.
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He explained that Wednesday’s big move “would have caught them offside and triggered a little bit of a reassessment if not an unwinding of those positions.” This sentiment is reflected in the positioning of net yen shorts, which are near a 17-year high.
The interest rate markets are now pricing in over 60 basis points of cuts in U.S. interest rates this year and about 20 basis points of hikes in Japan, which is reducing the previously wide interest rate gap that had encouraged heavy short positions in the yen.
Adding to the market’s unease, U.S. presidential candidate Donald Trump made comments in a Bloomberg Businessweek interview that the strength of the dollar and the weakness of the yen and yuan are “a big problem,” which also influenced market sentiments.
So far this year, the yen has been the worst-performing G10 currency against the dollar, depreciating more than 9%, while the yuan has declined about 2.2%. The yuan experienced a slight increase on Wednesday and continues to be closely monitored, especially as traders await the conclusion of a significant leadership meeting in Beijing expected to end later today.
In other currency movements, New Zealand’s dollar broke through its 200-day moving average on Wednesday and held its gains into Thursday at USD 0.6076, following domestic inflation data that tempered expectations for imminent interest rate cuts. Meanwhile, the Australian dollar remained steady at USD 0.6725.
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