Japanese Yen Stabilizes on Intervention Threat

11/01/2023

1 minute read

2023.11.01 09:17

MarketPulse

Yen steadies after the intervention warning
Fed widely expected to pause at today’s meeting

The steadied on Wednesday, following massive losses a day earlier. In the European session, USD/JPY is trading at 151.19, down 0.34%.

Tokyo Warns of Intervention After Yen Plunges

It was Black Tuesday for the Japanese yen, which plunged 1.78% and fell as low as 151.71, its lowest level since October 2022. The massive decline was in response to the Bank of Japan stating it would “patiently” maintain its ultra-loose policy. The BoJ kept in place its 1% upper limit on 10-year government bond yields but redefined this upper limit as a “reference” rather than a hard cap.

The BoJ tweak is apparently an attempt to abandon its yield control curve (YCC) policy without too much fanfare. The move clearly didn’t impress investors as the yen took a tumble. The Japanese currency has stabilized today, courtesy of jawboning from Masota Kanda, the top currency official at the Ministry of Finance (MoF).

Kanda said that the MoF is on “standby”, the same type of language he used a year ago when the MoF intervened in the currency markets, and warned that he was “very concerned about one-sided, sudden moves in currencies”. Kanda wouldn’t say what he would do but he accused speculators of being responsible for the yen’s recent moves. Today’s verbal intervention may have halted the yen’s slide for now, but with the US/Japan rate differential continuing to widen and I would expect the downswing to continue, absent an intervention on the currency markets.

The Federal Reserve winds up its two-day meeting today and the markets have fully priced in rate pause, which would keep the benchmark rate at 5.25%-5.50%. That doesn’t mean that the meeting is without significance. Investors will be looking for signals as to what the Fed plans to do next. Fed Chair Powell has been hawkish about inflation and I wouldn’t be surprised if he reiterated the same message at today’s meeting.

USD/JPY-4-Hour Chart