(May 4): The yen jumped in Asia on Monday, as traders remained on edge over the potential for Japanese authorities to step back into the market after last week’s intervention to curb declines.
The currency strengthened as much as 0.8% to 155.72 per dollar in a thin holiday session before retracing most of those gains. The whipsaw trading came after Japan likely spent around ¥5.4 trillion last week to support the yen — a warning shot to traders after it had weakened past 160 per dollar.
It’s not clear whether the moves reflect another intervention given that “low levels of liquidity due to the Golden Week holiday will lead to exaggerated moves", said David Forrester, senior strategist at Credit Agricole CIB. “It will be worth paying attention to the 157 level in dollar-yen as the exchange rate has struggled twice just above that level post the reported intervention.”
Japanese Finance Minister Satsuki Katayama declined to comment on potential FX intervention on Monday, saying instead on the sidelines of the Asian Development Bank’s annual meeting in Uzbekistan that markets had seen speculative trading.
Even as officials sidestep questions over recent market moves, attention is turning to how much capacity Japan has to counter yen weakness. According to analysts at Goldman Sachs Group Inc, the nation has the firepower to intervene 30 times at last week’s scale, though officials are expected to conserve its reserves and step in at more effective moments.
See also: Asia’s beaten-up currencies gain traction after defensive moves
Intervention during relatively moderate volatility suggests policymakers view the 160 level as the “line of defence", the Wall Street bank added.
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