The yen surged against a weaker dollar after an unexpectedly soft US payrolls report on Friday, offering the latest fodder for speculation that authorities could intervene in the Japanese currency again.
The currency rose as much as 1.1% versus the dollar to hit a session high of 156.68 after the data, then pared the gains to trade around 157.32. Market participants remained on alert for moves that could suggest intervention.
“I don’t think there was any” intervention by authorities behind Friday morning’s move, said Lee Ferridge, a strategist at State Street. “But I think the market is expecting it because that last round came when the US dollar was already under pressure. Its always easier to push on an open door.”
The yen had been near a four-decade low of around 164 per dollar last week before the first joint yen-buying operation from Japan and the US since 1998.
The effect of last week’s intervention had faded in recent days, fueling speculation authorities would act again. It also underscored the limits of intervention in reversing the yen’s longer-term decline, with a wide interest-rate gap to the US, Japan’s high debt load and geopolitical uncertainty continuing to weigh on the currency.
US and Japanese officials have warned investors they’re determined to keep defending the yen if needed.
While the Bank of Japan left its benchmark rate unchanged last week, overnight index swaps imply about a 60% chance of a rate hike by September. Japan’s top currency official, Atsushi Mimura, said authorities would respond to foreign-exchange moves in coordination with monetary policy.
Japan said it intervened in the currency market three times during the spring Golden Week holiday to prop up the yen, going beyond its recent twin-punch playbook with an additional round in an apparent effort to maximize the psychological impact on investors.
Intervention “could buy time to have a more credible policy mix or to craft a better message to investors,” said Idanna Appio, portfolio manager at First Eagle Investments earlier Friday. “But I don’t think on its own, it can be successful.”
Authorities likely used around $34 billion intervening in the currency market to support the yen on July 31, a Bloomberg analysis of central bank accounts indicates. The action came after authorities spent an estimated $53 billion the previous day, in what would likely be the largest single-day intervention on record if confirmed.