The Bank of Japan has reportedly, though unconfirmed, performed an emergency Yen intervention, the second in 3 days.
The dollar sharply dropped to 153 yen from about 157.55 yen, and while the reasons for this were not immediately clear, traders and analysts suggested it was likely due to yen buying directed by Japan's Ministry of Finance. This move occurred during a quiet period for the currency pair, after the U.S. stock market had closed and following the conclusion of the Federal Reserve's monetary policy meeting earlier in the day.
Kyle Rodda, senior financial market analyst at Capital.com in Melbourne, commented, "It caught markets off guard because, obviously, it happened in the U.S. session and seemed to be timed with the FOMC to take advantage of a weaker dollar. The 'sneak attack' element really is the MOF looking to punish speculators and send a warning about shorting the yen: Blow them out so they think twice next time."
Japan's vice finance minister for international affairs, Masato Kanda, who oversees currency policy, declined to comment on whether Japan had intervened in the market when contacted by Reuters. A U.S. Treasury spokesperson also declined to comment on the move in the currency pair.
As of 2326 GMT, the yen was trading around 155.58, retracing about half of its earlier spike. Kanda had previously warned that authorities were prepared to address foreign exchange matters "24 hours" a day, with the MOF issuing the order to intervene and the Bank of Japan executing the trades.
This yen appreciation comes after a similar sudden rally on Monday, when Japan markets were closed for a national holiday. Despite the Bank of Japan's decision to raise interest rates for the first time since 2007 in March, the yen remains down about 10% against the dollar this year. Japanese policymakers are proceeding cautiously with removing monetary stimulus due to a fragile exit from deflation, while a strong U.S. economy and persistent inflation have delayed Fed rate cuts.
James Kniveton, senior corporate FX dealer at Convera in Melbourne, remarked, "As long as there is a huge gulf between U.S. and Japanese rates, the efforts from the Bank of Japan to push against these fundamentals will likely have limited effect. The market is likely seeing the lower USD/JPY rate when intervention occurs as an opportunity to buy dips rather than a sign of a trend reversal. The Bank of Japan does have a lot of firepower, but currently they are swimming against the tide."
