Currency markets on guard for intervention in Japan’s yen

By Tom Westbrook and Danilo Masoni

SINGAPORE/MILAN, Jan 25 (Reuters) – Foreign exchange markets are starting the week on edge amid the possibility of official yen buying to build on the currency’s spike on Friday and a subsequent pledge by Prime Minister Sanae Takaichi to act against speculative moves.

In evening European trading on Sunday, the yen edged up against a weaker dollar, extending Friday’s surge.

By 2045 GMT, the dollar was down by about 0.8% against the yen, trading at 154.56, its lowest level since December 17. The dollar index fell 0.4% to 97.085, while the euro was traded at $1.1869, up 0.3%.

The low-liquidity hours early in Asia’s Monday morning will likely be particularly jittery with a holiday in Australia further thinning trade, which can exaggerate moves.

Short sellers are already nervous after the yen finished Friday with its sharpest rise in nearly six months to 155.73 per dollar.

On Friday, after the yen slid towards 160 to the dollar – where markets think intervention is a risk – it rebounded as the New York Federal Reserve conducted so-called rate checks, according to a source. Some traders saw the move as heightening the chance of joint U.S.-Japan intervention to halt the currency’s slide.

That would be the first joint move since Group of Seven countries sold yen in 2011 after the massive Tohoku earthquake, that time in a bid to restrain a surge in the yen.

This time, the yen has been weakening for years and is not far from multi-decade lows on the dollar. The slump has been drawing increasingly vocal complaints from officials, who say it is beginning to hurt the economy. On Friday, the yen zoomed higher twice: once, suddenly, in the London morning, and again in the New York session. 

 The dollar has finally topped out against the yen, said Elias Haddad, strategist at Brown Brothers Harriman. That opens the way for a move toward 140.00-145.00, a range implied by interest rate differentials, he said.

“First, worries over Japan fiscal profligacy are overdone given that growth comfortably exceeds borrowing costs. Second, Japan’s mix of loose fiscal policy and tighter monetary policy is JPY positive,” he wrote in an email on Sunday.

Takaichi said on Sunday the government “will take necessary steps against speculative or very abnormal market moves,” without specifying which market she was referring to.

A MAR-A-LAGO ACCORD?

The weak yen has become a source of headaches for Japanese policymakers as it pushes up import costs and broader inflation, hurting households’ purchasing power.

It has lost more than 5% on the dollar since Takaichi took charge of Japan’s ruling party and bond yields have soared on concern her government’s spending plans demand more borrowing.

Last week the yen touched record lows against the euro and Swiss franc before rebounding, and traders think it could rally beyond Friday’s closing price of 155.73 per dollar if markets see prospects for U.S.-Japan buying.

“Then, efficacy of future actual intervention, if any, will likely be more significant,” Nomura analyst Yusuke Miyairi said.

Japanese Finance Minister Satsuki Katayama said earlier in January she and U.S. Treasury Secretary Scott Bessent shared concerns over what she called the yen’s recent “one-sided depreciation”.

Bessent has also discussed South Korea’s won with his counterpart there and wrote on X that its recent slide was not in line with fundamentals, prompting speculation about a “Mar-a-Lago accord” to weaken the dollar against the won and the yen.

“It’s not ridiculous to believe that following Bessent’s comments on KRW … the U.S. and some Asian partners have agreed to stabilise or strengthen JPY, KRW, TWD (?),” Brent Donnelly, a currency trader and founder of analytics firm Spectra Markets, said in an emailed note.

(Reporting by Tom Westbrook and Danilo Masoni in Milan; Editing by Helen Popper, Elisa Martinuzzi, Andrew Heavens and Edmund Klamann)