Yen jumps sharply as Japan warns it is ready to intervene again

By Makiko Yamazaki, Leika Kihara and Dhara Ranasinghe

TOKYO/LONDON, May 1 (Reuters) – Japan’s yen jumped sharply on Friday as the country’s top foreign exchange diplomat said Tokyo was ready to step back into markets, hours after official buying lifted the fragile currency.

Atsushi Mimura’s comments and the yen’s sudden jump sparked speculation among currency traders of another round of intervention by Japan.

Having held steady overnight, the dollar dropped in London morning trade, falling by as much as 0.66% to a session low of 155.60 from 157.12 earlier, triggering talk of further intervention among already nervous currency traders. It was at 156.60 as of 1005 GMT.

It was not immediately clear what was behind Friday’s move, but analysts said markets were on edge after Thursday’s session.

Central bank data published late on Friday showed Japan may have spent as much as 5.48 trillion yen ($35 billion) bolstering its embattled currency, just shy of the $36.8 billion last spent on intervention in July 2024.

“Liquidity is thin and people are nervous after yesterday so there is a susceptibility to volatility in the dollar/yen,” said Jeremy Stretch, head of G10 FX strategy, CIBC Capital Markets.

Tokyo’s ramped-up rhetoric comes as the yen stays under pressure from wide U.S.-Japan interest rate gaps and ahead of a holiday stretch officials fear could invite speculative moves.

“I won’t comment on what we’ll do ahead. But I will tell you that Japan’s Golden Week holidays have just started,” Mimura told reporters when asked whether Tokyo could intervene in the currency market.

Japan’s finance minister, Satsuki Katayama, warned on Thursday “decisive action” was approaching. She also urged reporters to keep their smartphones on hand during the holidays, a pointed signal of Tokyo’s readiness to intervene and deter speculators from exploiting thin liquidity to push the yen lower.

Hours later, Japan stepped into the market to support the yen, its first official currency intervention in nearly two years, two sources familiar with the matter told Reuters, sending the Japanese currency as much as 3% higher.

Mimura declined to comment on whether Japan intervened in the currency market on Thursday and when asked whether currency moves remained speculative, replied: “There’s no change to my view on markets.”

Japan remains in “extremely close contact” with the U.S., Mimura said, adding that both countries agree action may be needed depending on market developments.

“Every time we see a substantial move in the yen there will be questioning about what is driving this given the warnings we have had,” said Stretch at CIBC Capital Markets.

After surging to 155.5 per dollar following the intervention on Thursday, the yen trimmed some gains to stand on the stronger side of the 160 mark which is seen as the Japanese authorities’ line in the sand for intervention.

GOLDEN WEEK AHEAD

Nervousness was reflected in the options market, where the cost of protection against big swings in the yen over the coming week neared its highest in a month, LSEG data showed.

Before the latest action, Japan last stepped into the currency market in July 2024, buying yen after it hit a 38-year low of 161.96 per dollar.

Weekly data from the U.S. market regulator shows speculators hold the largest bearish position in the yen since July 2024, worth nearly $7.5 billion.

Japanese markets will be closed on Monday through Wednesday for Golden Week, which could result in wild swings in the yen due to thin liquidity, analysts say.

The slow pace of rate hikes by the Bank of Japan has been one factor behind a weak yen. Even the BOJ’s hawkish signals on Tuesday failed to provide lasting support, as the dollar gained on market bets that mounting inflationary pressures will keep the U.S. Federal Reserve from cutting rates.

The yen has also been hurt by the surge in oil prices since the start of the Iran war. Japan is an energy importer.

“The yen will remain under downward pressure on inflation concerns from high oil prices, slow BOJ rate hikes and the hawkish tone of other central banks,” said Rinto Maruyama, FX and rates strategist at SMBC Nikko Securities.

Mimura has also previously flagged the possibility of Japan intervening in crude oil futures on concerns that market volatility was spilling over into yen moves.

“We have conditions in place and are always ready to take action,” Mimura told reporters when asked about volatile moves in the crude oil futures market.

(Reporting by Makiko Yamazaki and Leika Kihara; Additional reporting by Dhara Ranasinghe, Alun John and Amanda Cooper in London; Editing by Jacqueline Wong, Shri Navaratnam, Elisa Martinuzzi and Alexander Smith)