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The Japanese yen is lower on Tuesday. In the European session, USD/JPY is trading at 156.88, up 0.34%.
It has been a relatively quiet day for the yen after massive movement over the past two days. On Friday dollar-yen jumped 1.7% and broke above 158, but the real drama unfolded on Monday, when the yen went on a wild ride that saw it swing more than 550 basis points. The yen fell as low as 160.23 but then recovered and closed at 156.30, gaining 1.25% on the day.
What caused the huge spike? Japanese markets were closed on Monday and trading algorithms in thin liquidity could have accounted for the swing. Still, in the current environment of the yen losing ground fast, intervention by Tokyo was also suspected. Adding to the intrigue was the refusal of the Ministry of Finance (MoF) to comment on whether it had intervened in the market. We won’t know for sure if the MoF did step in until next month when details of any intervention will be released.
The MoF intervened in September and October 2022 in the order to prop up the yen, but the moves didn’t have a long-lasting effect and it’s questionable whether another intervention would be any different. Still, Tokyo doesn’t want to stand idly by as a plunging yen complicates its goal to achieve sustainable inflation.
The US/Japan rate differential remains wide and with the Fed signaling that it will delay rate hikes, the yen is unlikely to show much improvement without intervention. Investors will be on the alert for an intervention if the yen continues to lose ground.
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