Yen slides as traders test Tokyo’s patience

By Amanda Cooper

LONDON, Dec 22 (Reuters) – The yen traded near record lows against the euro and Swiss franc on Monday as the lack of hawkish signals from the Bank of Japan emboldened traders to sell the currency, even as Japanese officials stepped up warnings about intervention.

The yen also hovered near an 11-month low against the dollar. Short-dated Japanese government bond yields, meanwhile, hit record highs in the wake of the BOJ’s decision on Friday to raise rates by a quarter of a point to a three-decade high of 0.75%.

Higher yields would normally support the yen, but BOJ Governor Kazuo Ueda’s cautious tone in his post-decision news conference on Friday has rekindled appetite to sell the currency.

OFFICIALS STEP UP WARNINGS

In Tokyo, top currency diplomat Atsushi Mimura and chief government spokesperson Minoru Kihara said they were concerned about “one-sided and sharp” currency moves and were ready to “take appropriate actions,” making a widely recognised hint at intervention.

One of the drivers of yen weakness in recent weeks has been new Prime Minister Sanae Takaichi’s spending plan to boost growth and the impact that might have on Japan’s already strained finances.

Against that backdrop, the yen was flat against the euro, which hit a record high of 184.92 yen, while the Swiss franc rose as much as 0.2% to a record 198.4 yen.

Ueda is due to speak at Japan’s Keidanren business lobby on December 25, which may offer markets another opportunity to parse any policy clues.

Total spending in Japan’s draft budget for fiscal 2026 will probably exceed 120 trillion yen ($775 billion) to hit a new record, two government sources familiar with the matter said last week.

INTERVENTION ‘UNLIKELY TO SUCCEED’

“Given these current risks and uncertainties, FX intervention is very unlikely to succeed without that indication from the government on managing fiscal policy risks appropriately,” said Derek Halpenny, MUFG head of research, Global Markets EMEA.

If the government cannot soothe some of those concerns, there is a risk JGB selling could pick up, further destabilising the yen and possibly forcing the Ministry of Finance’s hand, he said. 

The U.S. dollar edged down 0.2% to 157.395 yen, but remained close to last month’s high of 157.90.

EUROPEAN FX FIRMER

Elsewhere, the euro rose 0.21% against the dollar to $1.1738, breaking a four-day fall last week. The European Central Bank left euro zone rates unchanged and effectively closed the door on rate cuts any time soon. The decision had been widely expected and ECB President Christine Lagarde has said numerous times the central bank is “in a good place” on monetary policy.

The pound was up 0.46% against the dollar at $1.344, having ended the previous week fairly flat after the Bank of England cut rates, but suggested there may not be many more in the pipeline, given inflation remains well above the central bank’s target. Sterling has risen 1.1% so far this month, bringing the gain for the year to around 7%.

(Additional reporting by Kevin Buckland in Tokyo and Gregor Stuart Hunter in Singapore. Editing by Shri Navaratnam, Kate Mayberry and Mark Potter)