Japanese Yen market in focus as traders anticipate intervention from ...

Japan’s hints that it will take full action to support the yen will be broadly welcomed by global investors. The yen fell to its weakest level against the dollar in approximately 34 years on Tuesday. The JPY is now very much on “intervention watch” having clipped 152 against the USD.

The currency’s slip to 151.97 per dollar in Tokyo, surpassing the critical threshold of 151.95 that triggered direct currency intervention in October 2022, has raised concerns among investors worldwide. Finance Minister Shunichi Suzuki has dropped signals of possible action to support it.

USDJPY was reversing heavily yesterday (Wednesday). After hitting 151.97, Suzuki warned that authorities wouldn’t hesitate to intervene against disorderly FX moves. He announced that the government will hold a special meeting to discuss the current moves in markets. This follows comments made on Monday by Japanese Vice Finance Minister Masato Kanda who warned that authorities stood willing to act if needed.

JPY has popped higher on the back of the comments as traders assess the very real risk of intervention. Suzuki told reporters on Wednesday: “Now we are watching market moves with a high sense of urgency.” Adding that “If there’s excessive moves, we will take decisive steps and not rule out any options. “BOJ governor Ueda was also seen offering reassurance, noting that the bank would continue to assess currency moves and their impact on the economy.”

Volatility risks rising in Yen market

“With risks of intervention growing, USDJPY looks to have limited room to run to the topside. With that in mind, a deeper correction is likely here,” said James Harte, an analyst with TickMill. “However, speculators might still look to test the BOJ’s resolve and push the rate back up, creating plenty of near-term volatility risk in JPY.”

Asian stock markets were experiencing a mix of trading on Thursday, as they responded to the generally positive trends in global markets from the previous day. Some traders were taking profits following the recent market strength, while also waiting cautiously for key US inflation data and Fed Chair Jerome Powell’s speech, as the markets will be closed on Good Friday.

At the same time, there is an optimistic atmosphere as several central banks are expected to begin cutting rates in the second half of the year. The Asian equity gauge saw minimal changes as gains in Hong Kong and mainland Chinese equities balanced out losses in Japan.

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The yen has historically been viewed as a safe-haven currency, prized for its resilience during times of economic turmoil. Its recent weakening has raised fears of increased volatility in global markets, prompting investors to seek refuge in more stable assets. Tokyo’s willingness to intervene to support the yen signals a commitment to restoring stability, which is crucial for investor confidence and market predictability.

In addition, Tokyo’s intervention to bolster the yen is likely to have significant implications for various asset classes and sectors.

How are investors reacting?

Investors may reassess their currency exposure and adjust their positions accordingly. Those holding yen-denominated assets may see an appreciation in the value of their investments, while those heavily exposed to the dollar may seek to hedge against potential losses. Additionally, currencies perceived as safer alternatives to the dollar, such as the Swiss franc and the euro, may experience increased demand as investors diversify their portfolios.

​Japanese equities could see a mixed reaction to Tokyo’s intervention. While a stronger yen may dampen the competitiveness of Japanese exporters, it could benefit companies with significant domestic operations by reducing import costs. Global investors may rebalance their equity portfolios, favouring sectors less dependent on exports and more resilient to currency fluctuations, such as technology, healthcare, and consumer goods.

​Tokyo’s rumoured efforts may also influence global bond markets, particularly government bonds. A stronger yen is likely to lead to lower yields on Japanese government bonds, making them less attractive to foreign investors seeking higher returns. Consequently, investors may reallocate their fixed income portfolios towards bonds from other countries with higher yields or explore alternative fixed income instruments to optimize their returns.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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