The yen jumped by more than 2% against the U.S. dollar on Thursday as traders ramped up bets on a Bank of Japan interest rate hike, while analysts pointed to BOJ data showing no official intervention behind the currency's strong gains on Wednesday.
A sharp, sudden rise in the yen against the dollar on Wednesday fueled speculation that Japanese officials had intervened to shore up the currency, after gains from a historic U.S.-Japan action in late July began to fade.
But with no evidence of official action, analysts say the move instead reflects bets that the BOJ could raise rates by more than previously expected when it meets on September 17 to 18.
“BoJ daily account data released today indicated there was no USD selling/yen buying by the MoF on Wednesday. Reports from market participants also indicate there were no 'rate checks' by the MoF yesterday,” said Jeremy Stretch, chief international strategist at CIBC Capital Markets.
During a rate check, a government or central bank asks financial institutions to quote an exchange rate but does not buy or sell.
Japan's top currency diplomat Atsushi Mimura said on Thursday that he remained on alert over currency market developments, warning that he was not yet comfortable with recent moves in the yen.
Yen strength on Thursday has also been gradual, unlike in previous periods of intervention, said analysts at Goldman Sachs.
And, "spillovers from the Yen move to Dollar weakness on other pairs have been more muted today versus those prior episodes," they said.
Hawkish comments from BOJ board member Hajime Takata were cited as a factor behind yen strength. Takata said on Wednesday the central bank should conduct interest rate hikes nimbly to counter intensifying inflationary pressures, rather than adhere to a fixed semiannual pace anticipated by markets.
Markets are now pricing in 75% odds of a 25-basis-point BOJ hike this month, with some traders speculating that an even larger increase is possible. An additional hike in October is also seen as a possibility, though not a likely one.
Market pricing “is too hawkish in our view. However, the continued market speculation over a faster pace of rate hikes means USD/JPY longs could still get squeezed in the coming days,” said Stretch.
The Japanese yen was last up 2.08% at 155.47 per dollar. It is approaching the 155.21 level that was the yen high after the July intervention. If it surpasses this level it will be the strongest since May 6.
The Japanese currency has struggled to find fundamental support, coming under pressure from still-wide interest rate differentials, fiscal worries and a renewed spike in energy prices.
TLT•
