Yen fell above 158 per dollar as BOJ kept key rate unchanged

Japan’s currency weakened as much as 1.8% on the day and touched a session low of 158.33 per dollar, with losses intensifying in late trading in New York. The decline began earlier in the day after a BOJ policy meeting, in which the central bank kept its key interest rate unchanged and Governor Kazuo Ueda did little to support the yen during a news conference.

Losses deepened even after underlying US inflation estimates matched expectations, reducing concerns about persistent price pressures that could delay a rate cut from the Federal Reserve.

Ahead of the BOJ meeting, traders boosted short yen positions. Hedge funds and asset managers’ combined bets on the currency’s weakness reached 184,180 contracts as of Tuesday, the most on record, according to 2006 data from the Commodity Futures Trading Commission.

Japan’s currency has already lost about 11% of its value against the greenback this year, the worst performance among Group-10 currencies. The depreciation is due to the gap between interest rates in the US – which are the highest in decades after the Fed’s aggressive tightening cycle last year – and in Japan, where borrowing costs remain very low, near zero.

Read more: Bank of Japan keeps its stance on rates and bond purchases

“This is incredible weakness,” said Justin Onuekwusi, chief investment officer at St. James Place Management. “Certainly this level of weakness would be cause for concern. We think the yen has gone too far and our approach will be to lean against it.”

Policymakers have repeatedly warned that depreciation cannot be tolerated if it goes too far too quickly. Finance Minister Shunichi Suzuki reiterated after the BOJ meeting that the government will respond appropriately to foreign exchange moves.

The Topix share index rose 0.9% after the BOJ’s decision, with real estate companies leading the gain. The yield on the benchmark 10-year bond fell to 0.925% from 0.93% earlier in the day.

“And once again, the BOJ has proven it can surprise even the weakest expectations on the Street,” said Saxo Capital Markets strategist Charu Chanana. Yen. But any intervention, if not coordinated and without the support of an aggressive policy message, will still be futile,” she said.

In a trilateral statement last week, the US, Japan and South Korea said they would continue to consult closely on foreign exchange market developments, acknowledging Japan and Korea’s serious concerns about the recent sharp decline in their currencies.

Based on analysis of comments from Masato Kanda, the Finance Ministry’s top currency official, 157.60 against the dollar is a key level to watch. The ministry will release the intervention data for the period March 28-April 25 on April 30, while today’s data will be released on May 31.

Other potential triggers are public holidays in Japan on Monday and Friday next week, which bring the risk of volatility amid thin trading.

“Should the yen fall further from here, such as after the BOJ’s decision in September 2022, the likelihood of intervention will increase,” said Hirofumi Suzuki, chief currency strategist at Sumitomo Mitsui Banking Corp. The action will begin.”

Japan carried out its first yen-buying intervention since 1998 in September 2022, when then-Governor Haruhiko Kuroda made harsh comments following a policy decision and the currency sank. Japan entered the market, spending more than ¥9 trillion ($57 billion) on three occasions by October that year.

–With assistance from Winnie Hsu, Masaaki Kondo, Vassilis Karamanis, Carter Johnson and Constantine Kourkoulas.

(Updates, charts of yen’s movements during the late session in New York)

More stories like this are available on Bloomberg.com

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Published: 27 April 2024, 03:53 am IST