Japanese Yen Settles Down

10/25/2022

1 minute read

2022.10.25 19:55

MarketPulse

The is almost unchanged today after being whipsawed over the past two sessions. In the European session, is trading at 1.48.93, down 0.06%.

It’s been a roller-coaster ride for the yen, as USD/JPY rose 1.7% on Friday and declined by 0.9% on Monday. The driver behind this volatility has been Japan’s Ministry of Finance (MOF) intervention, although Tokyo officials are keeping mum.

The MOF intervened in late September at the cost of around 2.8 trillion yen ($19.8 billion). Friday’s intervention was about double the size, and Monday was likely about the same. This means that the MOF delivers a more powerful punch to deter speculators from betting against the yen.

The interventions may have slowed the yen’s descent, but it’s doubtful the moves will reverse the downward trend. Japan’s current policy mix is contradictory and likely unsustainable – the MOF is intervening in the currency markets. In contrast, the has intervened in the fixed-income markets and capped yields on Japanese government bonds.

Markets eye BoJ meeting

With the Federal Reserve widely expected to another 0.75% rate next week, the US/Japan rate differential continues to widen, weighing on the yen. The MOF’s intervention and the subsequent volatility have heightened the interest in the BoJ’s meeting on Wednesday and Thursday, which some call a ‘do or die’ moment for the Japanese yen.

If the BoJ continues its dovish policy and doesn’t provide the yen a lifeline, it will fall even further. Japan’s rose to 3.0% in September, its highest level in eight years. This follows the 2.8% gain in August and matches the consensus, and the yen’s reaction has been muted today.

USD/JPY Daily Chart