Yen Inches Toward 160 Per Dollar, Raising Intervention Concerns

oh]y6feet5j93n)y62psqajl_media_dl_1.png Bloomberg

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(Bloomberg) — The yen edged closer toward a key level against the dollar, raising concerns over Japanese authorities stepping in again to prop up the currency. 

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The Japanese currency ended the session little changed after falling as much as 0.1% to touch 159.39 per US dollar on Tuesday. The drop had traders bracing for the currency to touch 160 per dollar, a level which has contained yen weakness in the past.

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“If USD/JPY were to break decisively above the psychologically important 160 level, concerns about intervention could intensify further,” Masayuki Nakajima, senior strategist at Mizuho Bank, wrote in a note.

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The yen had its worst day since mid-February on Monday — weakening by 1% — and has now walked back some of it gains from Japan and the US conducting their first coordinated intervention to support the yen since 1998. The joint efforts helped lift the yen from near a four-decade low of about 164 per dollar in late July to a peak of 155 earlier this month. 

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The US and Japan effort to lift the yen marks “a watershed moment,” and authorities “will prevail” in reaching a stronger yen, according to Eurizon SLJ Capital’s Stephen Jen and Joana Freire. “The most important message to take from the joint intervention is that both the US and Japan are determined to see dollar-yen lower.”

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The yen ended Tuesday at 159.28 per dollar.

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What Bloomberg Strategists say…

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“Intervention alone won’t erase the wide US-Japan rate gap or Japan’s fiscal and energy vulnerabilities. Sustained yen strength ultimately requires a more hawkish BOJ in action, with either a larger hike or a longer tightening cycle needed to overcome market doubts.”

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— Michael Ball, Macro Strategist, Markets Liv

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For the full analysis, click here

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Weakness has crept back into the Japanese currency as market participants refocus on underlying drivers. Wide interest-rate differentials with the US, concerns over Japan’s fiscal outlook and geopolitical uncertainty continue to weigh on the yen even as officials in Tokyo and Washington warn they are prepared to act again if needed.

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“Barring further policy action, the yen will likely struggle in this environment,” said Alex Cohen, a foreign-exchange strategist at Bank of America. “The impact of the last round of intervention has been wiped out.”

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(Updates pricing. Adds comment from Eurizon SLJ Capital.)

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