The Japanese yen rose temporarily yesterday against the US dollar, as rumours about a possible intervention in the FX market spread. The USD/JPY has now consolidated and remains flat on Wednesday.
On Wednesday, the 10-year Japanese Government Bond (JGB) yield rose to 0.8% for the first time since 2013 adding further pressure on the Bank of Japan (BoJ) to prepare for the end of its negative interest rate policy. In the US, both the US dollar and Treasury yield were higher. The 10-year yield reached 4.865%, which marks the highest level since 2007.
FX intervention by Japanese authorities
Late on Tuesday, the USD/JPY fell significantly amid rumours of an FX intervention by the Japanese authorities. The finance minister, the top currency official and the government’s chief spokesperson all said on Wednesday that they wouldn’t comment on whether Japan intervened. While a possible explanation for the sharp market movement on Tuesday could be market volatility and algorithms reacting to the yen’s slide through the key 150 per dollar threshold, market participants are nonetheless definitely on edge. It’s worth noting that the 150.00 threshold was the level that BoJ intervened last year. Therefore, those who will be placing any aggressive bullish trades on the USD/JPY pair should be very careful.
“I can’t say with full confidence if they intervened or not,” said Hideo Kumano, economist at Dai-Ichi Life Research Institute. “I think Kanda is trying to increase the psychological impact even with small amounts by not saying anything.”
Early on Wednesday, Japan’s top currency diplomat Masato Kanda said that any intervention would not target currency levels but volatility, and he mentioned it was normal for authorities not to comment on whether they intervened or not.
Japan’s Chief Cabinet Secretary Hirokazu Matsuno said on Monday that he will continue with appropriate steps on FX but avoided any comments about a possible intervention.
US Federal Reserve and data releases
In the US, on Tuesday, Cleveland Federal Reserve President Loretta Mester said that she is in favour of another rate hike at the next meeting if the current economic conditions continue but emphasised that the Fed is near its peak interest rate target. Atlanta Fed President Raphael Bostic said he will remain patient as there is nothing further to be done at the moment.
The US employment data this week could shed more light on the monetary policy and the future plans of the Federal Reserve. If the data comes in stronger-than-expected, the greenback could rise against its rivals. Market participants will closely watch the US ADP Employment Change and ISM Services PMI which will be due out during the American session on Wednesday. On Friday, the US Nonfarm Payrolls data will be the highlight of the week.
Meanwhile, markets will remain focused on Japan and the Japanese yen for any signals that could reveal whether the Japanese authorities intend to intervene in the FX market.