The Yen Weakens against the Dollar, Prompting Concerns of Intervention

(Bloomberg) — The yen briefly weakened beyond 150 against the dollar again as the wide yield gap between Japan and the US continued to weigh on the currency, keeping traders on guard against possible intervention from authorities in Tokyo.

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The Japanese currency slid to 150.11 per the greenback in early Asian trading on Monday before quickly recovering amid weight from options-related dollar selling. It was little changed from late Friday at 149.84 as of 7:12 a.m. Tokyo time.

The depreciation through the psychological level of 150 puts investors on alert about the possible intervention after Finance Minister Shunichi Suzuki said on Friday that it is important to have stability in foreign exchange markets and for them to reflect fundamentals.

ÔÇ£Dollar-yen broke the 150 line during hours with low liquidity and less participants, probably led by speculators,ÔÇØ said Yukio Ishizuki, senior currency strategist at Daiwa Securities Co. in Tokyo. ÔÇ£The topside of the currency pair is likely to become heavier in the Tokyo trading hours amid growing concerns about intervention, especially above the 150 line. People will continue to stay nervous.ÔÇØ

Traders are also on tenterhooks given tensions in the Middle East, elevated US Treasury yields, and a Bank of Japan policy meeting approaching on Oct. 30-31. Safe havens including the dollar, the yen, and the Swiss franc remained in focus Monday following news that an airbase in Iraq that hosts US and international forces was targeted overnight by rockets in an ongoing escalation of hostilities drawing in regional militia.

The US Treasury 10-year yield at 4.91% is almost six times that of JapanÔÇÖs equivalent at 0.835%. BOJ Governor Kazuo Ueda said on Friday that the bank will continue patiently keeping policy easy in order to achieve its goal of stable and sustainable 2% inflation.

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Meanwhile, investors are also digesting a Nikkei report that the BOJ officials are pondering the question of whether to tweak the settings of the yield-curve control program as domestic long-term interest rates float higher in tandem with those in the US, the Nikkei newspaper reported. It didnÔÇÖt say where it obtained the information.

The yen went to 150.16 on Oct. 3 before rapidly recovering to 147.43, stoking speculation that Japan had entered the market to prop up the currency. Senior government officials stuck to a strategy of keeping investors guessing on the following day by declining to clarify whether they had intervened.

Japan spent around ┬Ñ9 trillion ($60 billion) in September and October last year across three occasions in their first intervention to support the yen since 1998. JapanÔÇÖs chief currency official Masato Kanda has said that as a general principle, rate hikes, and interventions are ways to respond to excessive currency moves. He has vowed to take action if needed against excessive swings but declined to say whether recent market moves were speculative.

Still, the International Monetary Fund has said that it sees no factors that would compel Japan to intervene in the foreign exchange market to support the yen.

–With assistance from Saburo Funabiki.

(Updates with comment from currency strategist)

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