In morning trade on Monday, the dollar surged past 160 yen for the first time since 1990, propelled by a US inflation reading that exceeded forecasts. The stronger-than-expected data dampened expectations for US interest rate cuts this year. The dollar reached 160.17 yen in morning trading, sparking speculation that Japanese authorities might intervene to stabilise their currency amidst the surge.
Market speculation of intervention
The dollar soared past the ¥153 mark for the first time since the mid-1990s, prompting market speculation about potential intervention by Japan.
Response from Japanese authorities
Japan’s vice-finance minister for international affairs, Masato Kanda, indicated that authorities wouldn’t rule out any measures to address exchange rate fluctuations but stopped short of labeling the move as “excessive.”
Trigger: US inflation data
The dollar’s surge followed robust US inflation data for March, which pushed back market expectations for US interest rate cuts, driving up bond yields and strengthening the dollar.
Past interventions and current market dynamics
While the yen has flirted with the ¥153 threshold in recent weeks, previous Japanese interventions occurred when the currency weakened towards ¥152 against the dollar.
Outlook and potential intervention
With markets anticipating delayed US rate cuts and a significant interest rate differential between the US and Japan, downward pressure on the yen persists. Analysts suggest that Japanese officials may wait for further dollar-yen gains before considering official intervention.
Market response and currency dynamics
Despite warnings from Japanese officials about “speculative” movements impacting the currency, the substantial dollar-yen surge suggests that immediate intervention might not be imminent, especially amid broad-based dollar strength.
Currency analyst perspectives
Currency analysts highlighted the attractiveness of shorting the yen in favour of higher-yielding currencies like the dollar. They suggested that intervention efforts may only slow down, rather than halt, yen depreciation in the current market environment.
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