(Bloomberg) — The yen fell to its lowest level in more than 30 years in the aftermath of Thursday’s hotter-than-expected US inflation report, before reversing the move in a whiplash trade that raised market chatter of potential intervention.
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The Japanese currency fell to 147.67 per dollar, the weakest since August 1990, before bouncing back in choppy trading. It fluctuated around the 147.25 level early in Tokyo Friday.
Even at that level, the yen is still trading weaker than the low last month that prompted Japan to spend nearly $20 billion in its first intervention to support the currency in more than two decades. Strategists have said authorities won’t necessarily have a line in the sand on which they’ll intervene again and are likely focusing on the speed of declines.
In a joint press conference in Washington which came after the CPI data, Bank of Japan Governor Haruhiko Kuroda reconfirmed his commitment to easy monetary policy, while Finance Minister Shunichi Suzuki reiterated that authorities would take appropriate action against excessive currency moves. The pair are there attending Group-of-20 meetings.
Separately, a high-ranking official at Japan’s finance ministry declined to comment on whether it intervened in the market again.
“The measure to watch is not level, but volatility,” said Mazen Issa, a senior FX strategist at TD Securities. “USD/JPY volatility is pretty tame relative to the recent past, so there isn’t an urgency to act.”
Kuroda’s comments re-emphasized the central bank’s stance that it won’t be pivoting from its loose policy anytime soon, further sharpening the policy divergence between the BOJ and the Federal Reserve, especially as strategists expect the US dollar to strengthen further as policy makers keep on their quest to quash inflation.
“Markets have factored in hawkish Fed stance after strong CPI and expectations for solid US data in coming sessions, so trading based in these elements are done,” said Shinsuke Kajita, chief strategist at Resona Holdings in Tokyo. “That will make it difficult to drive USD/JPY further higher above the 32-year peak touched yesterday for now, at least during Tokyo session.”
Still, for Alan Ruskin, Deutsche Bank’s chief international strategist, yen levels against the dollar will matter as the Japanese government weighs further intervention. He argues the yen crossing through its 1998 low on Thursday could be seen as significant.
“While the Ministry of Finance/Bank of Japan often suggest volatility is the rationale for intervention, more often than not it is the actual levels that are more problematic,” he said.
(Updates with additional comment from Japanese officials.)
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