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Yen climbs after Bank of Japan intervenes in forex market

10:39, 22 September 2022

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Japan intervenes in the market for the first time since 1998 - Image: Shutterstock

Japanese authorities intervened to support the yen today, around 5pm local time, seeing the USD/JPY rate sink from close to 145.80 to 142.40. At mid-morning UK time the yen (USD/JPY) was trading at 142.75 - up around 0.9% on the dollar.

The nose-diving yen has inflicted runaway cost pressures on the spending power of Japanese consumers, totally unused to rampant bad price news, parking policymakers in an extremely tight spot.

Dollar vs yen (USD/GBP) exchange rate chart

The news this morning that the Bank of Japan would continue its super-loose monetary policy added further fuel to the currency strain.

The recent core consumer price index (CPI) 2.8% August inflation figure, the highest in almost eight years, was yet another pressure the Japanese authorities had to face down.

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USD/JPY ceiling at 145?

Jonas Goltermann, senior markets economist at Capital Economics, said the 145 level could now possibly be interpreted as level the central bank will defend.

He said: "Today’s decision effectively draws a line in the sand at 145 which, provided that policymakers follow through on today’s actions, may now become at least a near term ceiling for the USD/JPY rate."

USD/JPY

144.74 Price
+0.400% 1D Chg, %
Long position overnight fee 0.0011%
Short position overnight fee -0.0034%
Overnight fee time 21:00 (UTC)
Spread 0.014

AUD/USD

0.65 Price
-0.910% 1D Chg, %
Long position overnight fee -0.0011%
Short position overnight fee 0.0000%
Overnight fee time 21:00 (UTC)
Spread 0.00006

GBP/JPY

156.17 Price
-0.370% 1D Chg, %
Long position overnight fee 0.0000%
Short position overnight fee -0.0000%
Overnight fee time 21:00 (UTC)
Spread 0.041

GBP/USD

1.08 Price
-0.770% 1D Chg, %
Long position overnight fee -0.0013%
Short position overnight fee 0.0000%
Overnight fee time 21:00 (UTC)
Spread 0.00013

According to vice minister of finance Masato Kanda, the intervention was the result of the rapid, one-sided nature of the moves in the USD/JPY: indeed, the dollar has risen 24% against the yen year-to-date, having started 2022 at the 115 level.

Market may turn wary

Japanese authorities still face a monumental task if they are turn around the fortunes of the yen this year.

While the Bank of Japan maintained its accommodative policy, the Federal Reserve continued its hawkish campaign against inflation on Wednesday with a third-consecutive 0.75% rate hike, taking the main Fed funds rate to a range between 3%-3.25%.

Jane Foley, senior FX strategist at Rabobank, said: "It is unlikely that the MoF expects the intervention to turn USD/JPY lower. Instead, today’s action is likely aimed at slowing down the pace of gains in USD/JPY."

The intervention was also likely aimed at ending, or at least slowing, the one-way, speculative bets against the Japanese currency. Investors will now be wary of taking long-term short positions for fear that further intervention could catch them out.

Further reading

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