The yen drifted in Tokyo trading Thursday as traders mulled Japan’s strongest warning yet that it would act to halt the currency’s slide.
(Bloomberg) — The yen drifted in Tokyo trading Thursday as traders mulled Japan’s strongest warning yet that it would act to halt the currency’s slide.
The Japanese currency slipped 0.2% to around 143.40 per dollar, having rallied from just under the closely-watched 145 level Wednesday on signs the Bank of Japan was preparing an intervention.
Signals from the options market suggested traders were taking the threat of action seriously. One-month risk-reversals for dollar-yen — a gauge of expected direction for the pair over that time frame — fell to the lowest in since early August.
On Wednesday, the BOJ conducted a so-called rate check in the market — asking for an indicative price at which it could buy yen — according to a person with direct knowledge of the event, a move widely seen as a precursor to intervention. Both the finance minister and the nation’s top currency official also warned that all options were on the table. Japan last intervened to buy the yen in 1998.
“We continue to think that the likelihood of intervention operations looks low, but the escalation in verbal intervention over the past 24 hours combined with the reported ‘rate checks’ should raise the odds priced into markets,” wrote Goldman Sachs Group Inc. strategist Karen Fishman Wednesday. “The risk probably rises further as dollar-yen hits fresh highs, particularly if at a relatively rapid pace and not accompanied by broad dollar strength.”
Still, without a broader shift in Japan’s monetary policy framework, the odds of a successful and sustained intervention are even lower, she added.
When Yen Jawboning Isn’t Enough, BOJ Rate Checks Loom: Primer
Japanese authorities have been stepping up verbal warnings with the yen down almost 20% against the dollar this year, but these have failed to turn the tide. The currency has come under intense pressure with the BOJ resolutely keeping rock-bottom rates to bolster the economy, while the Federal Reserve aggressively hikes, widening the policy differential between the two countries.
How and When Japan Intervenes in Currency Markets: QuickTake
(Updates prices.)
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