Yen breaches 150 per dollar again, raising intervention risk

BLOOMBERG

The yen briefly weakened beyond 150 against the dollar again as the wide yield gap between Japan and the US continues to weigh on this year’s worst-performing major currency.
It touched 150.11 per the greenback in early Asian trading on Monday before quickly recovering amid weight from options-related dollar selling and suggestions of algorithmic transactions. It was little changed at 149.87 at 11:30 a.m. in Tokyo.
Traders are wary of betting on further depreciation given the risk of intervention from authorities in Japan. Finance Minister Shunichi Suzuki said that it is important to have stability in foreign exchange markets and for them to reflect fundamentals.
“Dollar-yen broke the 150 line during hours with low liquidity and less participants, probably led by speculators,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities Co in Tokyo.
“The topside of the currency pair is likely to become heavier in the Tokyo trading hours amid growing concerns about intervention, especially above the 150 line. People will continue to stay nervous.”
The yen’s rapid recovery from above 150 also showed signs of being “triggered by algorithm transactions that were automatically executed due to intervention concerns,” said Fukuhiro Ezawa, head of financial markets in Tokyo at Standard Chartered Bank.
The wide interest rate divide with the US is seen in the Treasury 10-year yield at 4.96%, which is almost six times that of Japan’s equivalent at 0.835%. The divergence in monetary settings is fueling the gap and Bank of Japan Governor Kazuo Ueda said that the BOJ will continue patiently to keep settings accommodative in order to achieve the goal of stable and sustainable 2% inflation.
Traders are on tenterhooks with a BOJ policy meeting approaching on October 30-31, and tensions in the Middle East increasing uncertainty in global markets.
Investors are also digesting a Nikkei report that BOJ officials are pondering the question of whether to tweak yield-curve control program as domestic long-term interest rates float higher in tandem with those in the US. It didn’t say where it obtained the information. “If the BOJ wants to see a stronger yen, I think they will need to do more than just widen the band yet again,” Rodrigo Catril, currency strategist at National Australia Bank in Sydney, said of the YCC program.
A tweak to the BOJ’s ultra-loose monetary policy could propel the yen to 145 against the dollar if the central bank also flags that a rise in interest rates is coming, according to RBC BlueBay Asset Management.