FOREX-Yen drifts after intervention whirlwind; Iran optimism dents dollar

The dollar hit its lowest against the Japanese currency in three months after joint purchases on Friday by Tokyo and Washington — the first yen-buying intervention for U.S. authorities since 1998 — and fell further still on Monday. Since then, it has strengthened against the yen, suggesting investors are sceptical about how effective intervention can be in the longer run. "The phrase 'sticking plaster' does feel relatively appropriate in many instances. The reality is, I think it is nothing more than a containment exercise, unless you get one of three criteria," CIBC Capital Markets head of G10 FX strategy Jeremy Stretch said. He said broadly, the three criteria would be a more aggressive approach to rate hikes from the Bank of Japan, markets pricing in a lower chance of rate increases from the Federal Reserve, and a lower oil price. Bessent told public broadcaster NHK that he was sure Bank of Japan Governor Kazuo Ueda will "do what is best" for the country's economy, heightening market expectations that the BOJ could raise rates at its next policy meeting on September 17 and 18. 0#JPYIRPR BNY said in a research note on Wednesday its data showed investors still held bullish positions in the yen, but these were far smaller than in the first half of this year. "U.S. support provides an opening for re-accumulation (of bullish positions), but we believe the market will agree with Bessent that any structural shift in holdings will depend on credible domestic policy changes," BNY senior EMEA macro strategist Geoff Yu said. The Japanese yen steadied on Wednesday after its most volatile few days in months thanks to several rounds of historic intervention, while the dollar traded around six-week lows against other currencies as optimism over a resolution to the [war in Iran](https://www.reuters.com/world/iran/) blunted any safe-haven demand. The yen JPY= was steady at 157.72 per dollar, after falling 0.4% on Tuesday. On Monday, it hit as little as 155.2 per dollar, having traded at its weakest in 40 years, around 164 per dollar a week earlier. U.S. Treasury Secretary Scott Bessent on Tuesday offered extra verbal support by saying the U.S. would do "whatever it takes" to shore up Japan's efforts to stabilise the yen, echoing the words of former European Central Bank President Mario Draghi, who in 2012 pledged the same to preserve the euro during the regional debt crisis. The dollar index =USD, which tracks the U.S. currency against six others, was little changed at 99.85 after hitting a six-week low on Monday. With the oil price back around $80 a barrel LCOc1 and U.S. President Donald Trump saying his administration had "very good discussions" with Iran, investors had less incentive to buy the dollar as a safe haven. Lower oil prices also prompted traders to attach a lower chance of the Federal Reserve raising interest rates in September, which also acted as a drag on the dollar. That probability was just below 60% on Wednesday, from closer to 70% at the start of the week. Kansas City Fed President Jeff Schmid said on Tuesday that some monetary policy tightening was needed to bring "too high" inflation back to the Fed's 2% target. The euro was steady at $1.1536 EUR= and sterling GBP= traded flat at $1.346 GBP=D3. In terms of macro events, the U.S. monthly employment report on Friday USNFAR=ECI could help shape expectations for near-term Fed policy.

FOREX-Yen drifts after intervention whirlwind; Iran optimism dents dollar

Intervention seen as short-term support

Yen steadies after historic intervention

Oil retreat and Fed outlook weigh on the dollar

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