Currency diplomat's intervention warning boosts Japanese yen

Yen rebounds as currency official warns of intervention

The beleaguered Japanese yen saw a modest rebound on Wednesday amid concerns of potential intervention by the Bank of Japan, and as investors redirected their attention to the upcoming Federal Reserve policy decision later in the day.

The dollar to yen rate saw a 0.50% decrease, trading at 150.92, partly due to the notably direct comments from Japan's chief currency diplomat, Masato Kanda.

"Speculative trading seems to be the biggest factor behind recent currency moves," Kanda, vice finance minister for international affairs, said while talking reporters on the yen's recent depreciation.

"We're on standby," the official said when asked about the chance of yen-buying intervention. However, he refused to disclose the specifics of any potential measures Japan might undertake, as well as the timing of these actions.

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Dollar to yen exchange rate: USDJPY falls to one-year low after BoJ meeting

USDJPY reached a one-year peak on Tuesday as the yen weakened following the Bank of Japan's decision to redefine its 1% limit on 10-year government bond yields as a reference rate — a flexible “upper bound — instead of hard cap.

The change left many investors somewhat disappointed, as they had anticipated a more pronounced shift away from the country’s extremely loose monetary policy.

Nonetheless, the change was insufficient to bridge the substantial gap in bond yields between Japan and other nations, which has largely contributed to the yen's close to 14% depreciation against the dollar this year.

Yen forecast: JPY could slide further as 150 mark not the intervention “red line” for BoJ, says RBC analyst

In a comment to Reuters on Wednesday, Claudio Irigoyen, global head of economics at Bank of America Global Research, said that the Bank of Japan’s pace of monetary policy normalisation was far slower than the one observed in other regions, such as the eurozone:

“The normalisation (in policy) is relatively fast for BOJ standards, but slow relative to what we are seeing in the rest of the world.”

Alvin Tan, head of Asia FX strategy at RBC Capital Markets, said the 150 yen-per-dollar mark was likely not the “red line” for intervention eyed by the Bank of Japan, with markets closely watching for signs of the government stepping in to support the currency:

"The market definitely will try to probe for where the red line is for the Ministry of Finance. It's clear that it's not at 150 (per dollar) but you don't want to be out there in front when the Japanese authorities intervene."

At the time of writing, the dollar to yen exchange rate stood at 150.85, with the yen rising by 0.55% against USD on the day, as per MarketWatch data. The DXY dollar index was steady at 106.7, mostly trading sideways ahead of the Federal Reserve policy announcement.

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