The yen surged against the dollar on Wednesday, erasing roughly half of its retracement since July's joint U.S.-Japan intervention. Analysts debate whether the move was an official rate check or a fresh market intervention.
The Japanese yen jumped 0.79% to 158.92 per dollar on Wednesday, clawing back roughly half of the ground it had given up since the U.S. and Japan jointly intervened at the end of July. The currency had touched a 40-year low of 163.98 per dollar before that intervention, then rallied as far as 155.21 before drifting weaker again.
Traders debate a rate check
According to Chris Scicluna, head of economic research at Daiwa Capital Markets Europe: "It's a big chunky move and it would be a convenient time" for the U.S. or Japan to conduct a rate check, following the Bank of Japan comments that morning. During a rate check, a government or central bank asks financial institutions to quote an exchange rate but does not actually buy or sell.
Scicluna added that the move more likely reflects a rate check than a repeat intervention, since the recent intervention did not shift the underlying trend. Hank Calenti, chief strategist for global markets at SMBC EMEA, noted that interventions tend to happen when markets are thin, as they are this week. But Takafumi Onodera, first vice president at Mitsubishi UFJ Trust and Banking Corporation, said the size of the gain remains below what an official move would typically produce.
BOJ hawks fuel hike bets
Hawkish BOJ board member Hajime Takata said Wednesday the central bank should raise interest rates nimbly to counter intensifying inflationary pressure rather than stick to a fixed semiannual pace. That followed BOJ Governor Kazuo Ueda's signal on Tuesday of a strong chance of a hike this month, while U.S. Treasury Secretary Scott Bessent voiced support for decisive monetary steps to combat yen weakness in a meeting with Ueda.
Even so, the yen has struggled to hold gains given the wide interest-rate gap between the U.S. and Japan. It traded back to 160.39 earlier Wednesday, its weakest level since the July intervention, before the later rally. Eric Theoret, currency strategist at Scotiabank, said the drift back above 160 suggests markets don't see a fundamental underpinning for the yen at this point.
Oil and yields lift the dollar
A spike in oil prices and a rise in benchmark 10-year Treasury yields to a three-year high had boosted the dollar earlier Wednesday, before the yen's later reversal. The dollar index fell 0.09% to 99.59, with the euro down 0.06% at $1.1585. Brent crude rose 1% in a volatile session on renewed military strikes between the U.S. and Iran that have restricted world oil supply.
Traders now worry higher oil prices could feed through to consumer-price inflation that is already running above target, raising the odds of a Federal Reserve rate hike. Hawkish comments from Fed Chairman Kevin Warsh on Friday pushed Fed funds futures traders to price in 63% odds of a September hike, up from 35% before his remarks.
Source: Investing.com
Trading involves risk.
Risk Disclaimer
