May 3 2024: Japan finds itself in a tough struggle against bearish sentiment towards the yen, as recent suspected interventions aimed at supporting the currency have sparked a complex market response. While these interventions have temporarily boosted the yen, they also signal a prolonged battle with traders who view the yen as an attractive target for selling.
Traders estimate that the Bank of Japan (BOJ) spent approximately $59 billion this week to defend the yen, resulting in the currency’s best weekly performance in over a year. Despite this, Tokyo has not officially confirmed any intervention.
The yen’s recent rally has been marked by volatility, reflecting the market’s underlying bearish sentiment due to the significant yield differentials between Japan and other major economies. This sentiment has led traders to view the yen as a lucrative opportunity for profit, particularly as they anticipate BOJ intervention to support the currency.
Rob Carnell, head of Asia-Pacific research at ING, describes the yen as “a trader’s dream,” highlighting the ease with which traders can capitalize on yen weakness by buying dollars and waiting for the yen to appreciate before selling.
Past interventions by Japanese authorities, such as those in 2022, have had limited long-term impact on the yen’s value, underscoring the challenges Japan faces in stabilizing its currency amidst wider economic factors.
Ben Bennett, Asia-Pacific investment strategist at Legal And General Investment Management, notes that intervention carries costs and suggests that the MOF is focused on managing the pace of yen depreciation rather than targeting specific exchange rate levels.
The yen’s status as the cheapest major currency for borrowing and short-selling further complicates the outlook, with analysts noting that the 160 level appears to be a key threshold for BOJ intervention.
Hirofumi Suzuki, chief currency strategist at Sumitomo Mitsui Banking Corporation, believes that Japanese authorities may aim to restore the yen to around 155 per dollar, reflecting their concerns about speculative market behavior.
Yujiro Goto, head of currency strategy for Japan at Nomura, suggests that Japanese importers prefer a yen value around 150, indicating potential motivations behind BOJ interventions.
However, analysts caution that Japan’s currency reserves are finite, and the effectiveness of intervention strategies may be limited in the face of broader economic trends, such as expectations of higher U.S. interest rates.
Overall, Japan’s efforts to manage yen fluctuations are seen as a means to address market speculation rather than achieve rapid yen appreciation.
