Yen Traders Monitor Verbal Intervention Possibilities as Weakness Persists

Tokyo’s foreign exchange (FX) traders are keeping a close eye on official statements as the Japanese yen (JPY) continues to weaken, nearing levels that prompted government intervention last year to support the currency. On Friday, the yen traded beyond 143 per dollar, falling nearly 1% from the previous session. It has also hit a record low against the Swiss franc and currently stands at levels last seen in 2008 against the euro.

The ongoing divergence between Japan’s accommodative monetary policy and the hawkish stance adopted by major central banks is putting pressure on the yen. In response, Japanese officials have issued warnings, emphasizing their close monitoring of the currency’s movements and their readiness to take action, similar to the intervention carried out late last year. At that time, when the yen approached 146 per dollar, it triggered the first intervention to bolster the currency since 1998.

Kristina Clifton, an economist at the Commonwealth Bank of Australia, underscored the stark contrast between the dovish Bank of Japan and other major central banks, suggesting a further decline in the yen in the near term. Clifton also raised the possibility of Japanese authorities resorting to verbal intervention due to the weakened yen.

However, market expectations for significant movements triggered by verbal intervention currently seem subdued. One-month implied volatility in the yen remains below the levels observed prior to the actual intervention conducted last year.

The recent surge in US Treasury yields following warnings from major central banks about potential interest rate hikes has served as another catalyst for yen depreciation. Federal Reserve Chair Jerome Powell indicated the possibility of one or two additional rate increases this year, while the Bank of England hinted at the potential for further rate hikes after a recent half-point boost.

Quarter-end investor buying and corporate hedging flows have also contributed to the yen’s decline, leading some traders to speculate that reaching 145 per dollar would face minimal resistance.

In light of these developments, traders will continue to monitor official statements and economic indicators closely. The potential for verbal intervention or more active measures to support the yen remains a key focus for market participants. As global monetary policy continues to diverge and external factors impact currency valuations, Japanese authorities may need to take decisive action to prevent further depreciation and maintain economic stability.