Yen jumps abruptly as intervention speculation swirls

By Rae Wee, Noriyuki Hirata and Ankur Banerjee

SINGAPORE/TOKYO, May 6 (Reuters) – The yen surged suddenly on Wednesday, sparking speculation of further intervention by Tokyo, which is widely credited with last week’s sharp rally in the battered currency.

There has been no confirmation from Japan that it ‌is buying the yen but officials have been threatening intervention for months. Sources told Reuters that authorities intervened last week and money market ‌data suggests they sold about $35 billion.

A weak yen is pushing up inflation and living costs in Japan, and officials say the drag on the economy is becoming palpable. But with the currency freely ​floating, any intervention pits policymakers against traders who have been selling the yen for years, and who soon dialled back its jump on Wednesday.

The yen climbed from around 157.8 to the dollar to 155 in a half hour of holiday-thinned trade in the Asia session. It was last at 156.06 in Europe, leaving the dollar down 1.15% on the day.

Large offers were placed for dollar/yen at 156 on the EBS platform, one trader, who spoke on the condition of anonymity, told Reuters. The move is ‌at least the fourth sudden unexplained jump in the ⁠yen in the past five sessions. The yen is now more than 2.5% higher against the dollar than it was a week ago.

“It is obviously an intervention,” said Yuji Saito, an executive adviser at SBI FX Trade in Tokyo. The exchange rate ⁠was soon back to 156.4 to the dollar, suggesting that any intervention was being resisted by the market.

Japan’s Ministry of Finance (MOF) was not immediately available for comment on what is a public holiday in Japan.

Japanese Finance Minister Satsuki Katayama had on Monday warned against speculative moves in foreign exchange, after a brief jolt higher in the yen at the ​start ​of the week.

‘AN EXTRA NUDGE’

Investors have been bracing for further yen buying from Japanese authorities ​after sources told Reuters last week that Tokyo had stepped in ‌to stem the yen’s decline on Thursday.

Traders at agent banks have been standing by to get intervention orders throughout Japan’s Golden Week holiday period, one market source told Reuters.

Wednesday’s rise in the yen also came as the dollar fell broadly on hopes of a resolution to the U.S.-Iran standoff in the Strait of Hormuz.

“It’s possible the authorities decided that was a good moment to give the yen an extra nudge,” said Thomas Mathews, head of markets for Asia-Pacific at Capital Economics. “That said it might be just thin holiday-affected trade.”

Analysts expect the intervention impact to be temporary and some investors have eyed drops in the dollar/yen rate as an ‌ideal entry point for shorting the Japanese currency and opening “carry trades” which profit from interest ​rate differences.

Short positions in the yen had hit a nearly two-year high last week and CFTC ​data due on Friday may show whether that retreated in the wake ​of jumps in the currency.

“Taking into account high energy prices and Japan running substantially negative real interest rates, plus the dollar ‌being in demand, Tokyo cannot expect a sustained drop in ​USD/JPY,” said Chris Turner, ING’s global head ​of markets.

“The wild card, however, would be whether the U.S. Treasury gets involved,” he said, which is a possibility after an unusual “rate check” on yen prices by the New York Fed in January.

“Joint U.S.-Japanese intervention to sell USD/JPY would be far more significant than solely Japanese intervention. Here, not ​only would Washington be backing up Tokyo’s view that ‌the yen has been unfairly targeted, but it could also develop a view that Washington felt that the dollar was too strong.”

(Reporting by ​Rae Wee and Ankur Banerjee in Singapore, Noriyuki Hirata and Makiko Yamazaki in Tokyo; Additional reporting by Gregor Stuart Hunter and Amanda Cooper. ​Writing by Tom Westbrook. Editing by Muralikumar Anantharaman, Sam Holmes and Shri Navaratnam)