Yen choppy on intervention jitters after BOJ strikes hawkish tone

By Iain Withers and Gregor Stuart Hunter

LONDON/SINGAPORE, Jan 23 (Reuters) – The yen traded choppily on Friday with traders nervous that Japanese authorities are close to intervening directly in markets to support the currency, while global stocks were subdued after previously rallying on U.S. President Donald Trump’s softer stance on Greenland.

The Bank of Japan earlier in the day signalled its readiness to continue raising still-low borrowing costs against the backdrop of a politically-charged atmosphere, ahead of a snap election next month.

Early in London trading, the yen suddenly swung from a loss to a sudden gain versus the dollar, causing traders to infer some Japanese authorities may have run rate checks with banks – often used to signal to the market their readiness to intervene to support a currency at 18-montf lows to the dollar. 

Japanese Finance Minister Satsuki Katayama said on Friday she was watching currency markets closely, but declined to comment on the speculation.

Meanwhile, two-year Japanese government bond yields climbed to 1.25% for the first time since August 1996.

“The (BOJ’s) tone appears hawkish,” said David Chao, global market strategist for Asia-Pacific at Invesco in Singapore. “The BOJ has raised four of its six inflation projections and indicated that further rate hikes are likely if these forecasts are realised.”

Global stocks have clawed back much of the ground lost early in the week on rising tensions between the United States and Europe over Greenland, after President Donald Trump said he would not slap on trade tariffs for now and would not take the territory by force.

Global stocks edged up 0.1%, while European stocks slipped 0.1%. Wall Street futures pointed to falls of around 0.2%, with disappointing forecasts weighing on Intel.

“Trump is really unpredictable, we know that. We still can have some threats one way or the other… It’s sure that the Europeans are still very cautious on this environment,” said Marie de Leyssac, portfolio manager at Edmond de Rothschild Asset Management.

Some big Northern European investors are increasingly wary of the risks of holding U.S. assets.

“What it absolutely does is to heighten risk… It is making us think about cash levels and about our allocations to bonds and equities,” said Neil Birrell, chief investment officer at Premier Miton. 

Investors were also watching for any signs of progress from U.S.-brokered trilateral talks over Ukraine. Ukraine’s President Volodymyr Zelenskiy said on Friday that the vital question of territory in Ukraine’s war with Russia would be discussed in Abu Dhabi on Friday and Saturday.

GOLD NOTCHES ANOTHER RECORD, OIL GAINS

Oil prices rebounded on Friday after Trump renewed threats against Iran, raising concerns of military action that could disrupt crude supplies while there are outages in Kazakhstan. Brent crude futures were last up 1.7% at $65.12 a barrel.

Precious metals markets, including gold, set new records. Spot gold hit a record $4,967.03 before slipping to stand 0.2% lower at $4,924.

The U.S. dollar index, which measures the greenback’s strength against a basket of six currencies, was last up 0.5% at 98.351, but remained close to its lowest levels of the year after logging its biggest one-day fall in six weeks on Thursday.

The dollar was last down 0.1% versus the yen at 158.175.

Fed funds futures are pricing an implied 97% probability that the U.S. Federal Reserve will hold rates at its next two-day meeting on January 28, little changed from a day earlier, according to the CME Group’s FedWatch tool.

The yield on the U.S. 10-year Treasury bond was last at 4.2331%.

(Reporting by Iain Withers in London and Gregor Stuart Hunter in Singapore, additional reporting by Naomi Rovnick; Editing by Jane Merriman, Kirsten Donovan)