Yen Hits rose against major rivals in Asian trade on Friday, extending its gains for the third consecutive session and reaching a three-week high. This significant turnaround came after Japanese authorities intervened to support the yen, following its slump below the 160 barrier against the dollar for the first time since 1990. This article explores the reasons behind the yen’s rebound and the implications of the government’s interventions on the currency markets.
Yen’s Performance Against the Dollar
The USD/JPY pair fell 0.5% to 152.75 yen on Friday, reaching its lowest point since April 12. This downward trend follows the yen’s 0.7% gain against the dollar on Thursday, a second consecutive day of profit. The rebound from 34-year lows at 160.21 is largely attributed to the Japanese government’s interventions and the impact of slower US 10-year treasury yields, which weakened the dollar.
Japanese Authorities’ Intervention
Japanese authorities have been actively intervening in the forex market to support the yen, especially after it fell below the 160 barrier. The Bank of Japan reportedly spent nearly $60 billion in the forex market to prevent further depreciation. These interventions have had a noticeable impact on the yen’s value, helping it rebound from multi-decade lows.
Significance of the 160 Barrier
The 160 yen per dollar level has become a critical threshold for Japanese authorities. Once the dollar surpassed this barrier, the Bank of Japan intervened aggressively to support the yen. The intervention strategy involves large-scale purchases of yen, with a focus on low-liquidity days to maximize the impact. The efforts are aimed at stabilizing the yen and preventing further depreciation.
US Treasury Yields and the Dollar
US 10-year treasury yields fell to two-week lows on Friday, putting pressure on the dollar and benefiting the yen. This decline in treasury yields follows a somewhat bearish Federal Reserve meeting, where the central bank maintained a cautious approach to interest rates. The resulting weakness in the dollar provided additional support for the yen and other major currencies.
Recent Government Interventions
Japanese authorities’ interventions this week were strategically timed. On Monday, a Japanese public holiday, the dollar hit a 34-year peak against the yen at 160.21 before collapsing to 154.40 by the European session, indicating a direct government intervention. Similarly, on Wednesday, the dollar suddenly tumbled 1% in five minutes, with an additional 2% drop within half an hour. These sudden movements suggest that Japanese authorities are taking a proactive approach to supporting the yen.
Weekly Performance of the Yen
The yen is on track for its first weekly profit in five weeks, with a 3.5% gain against the dollar, marking the largest weekly gain since November 2022. This significant turnaround underscores the effectiveness of the Japanese government’s interventions and the broader impact on currency markets.
The Role of the Federal Reserve’s Policy
The Federal Reserve’s recent policy meeting had a somewhat bearish tone, leading to a decline in US treasury yields and a weaker dollar. This shift in the Fed’s approach to monetary policy indirectly benefited the yen, contributing to its recent rebound. The Fed’s cautious stance has reignited hopes for rate cuts later this year, which could further influence currency markets.
Impact on the Forex Market
The interventions by the Japanese government have had a noticeable impact on the forex market. Data from the CME Group indicates that yen trading volumes on the EBS platform reached $77 billion on Monday
the highest since November 2016, and $42 billion on Wednesday. These high trading volumes, concentrated in specific periods, reflect the significant influence of government intervention on market liquidity.
Potential for Further Interventions
Given the current intervention strategy, upcoming public holidays in Japan and the UK could become opportunities for further aggressive interventions by the Bank of Japan. The effectiveness of the recent interventions suggests that the Japanese authorities are prepared to take decisive action to support the yen and maintain stability in the currency markets.
Conclusion
In summary, the yen has rebounded to a three-week high, thanks to significant interventions by Japanese authorities. The Bank of Japan’s efforts to stabilize the yen, combined with the decline in US treasury yields
have contributed to the currency’s recovery from multi-decade lows. As the Japanese government continues to monitor the forex market, further interventions may be expected, especially during low-liquidity periods. Investors should stay informed about the yen’s future direction and the impact of ongoing government interventions.
FAQs
Q1: Why did the yen rebound from 34-year lows? A1: The yen rebounded due to aggressive interventions by Japanese authorities, who spent nearly $60 billion in the forex market to support the currency after it dropped below the 160 barrier against the dollar.
Q2: What is the significance of the 160 yen per dollar level? A2: The 160 yen per dollar level has become a “red line” for Japanese authorities. Once the dollar surpassed this barrier, the Bank of Japan intervened aggressively to prevent further depreciation and stabilize the yen.
Q3: How does US treasury yields impact the yen? A3: US 10-year treasury yields affect the dollar’s value. When yields fall, the dollar weakens, providing support for other currencies, including the Yen Hits. The recent decline in treasury yields contributed to the yen’s rebound.
Q4: What were the recent government interventions to support the yen? A4: Japanese authorities intervened by buying large amounts of Yen Hits to support the currency
especially after the dollar rose past 160 yen. The interventions were strategically timed to maximize impact, often during low-liquidity periods.
Q5: What is the potential for further interventions by Japanese authorities? A5: The current intervention strategy suggests that upcoming public holidays in Japan and the UK could become windows for further aggressive interventions by the Bank of Japan. The success of recent interventions indicates that the Japanese government is prepared to take decisive action to support the Yen Hits.