The yen eased on Tuesday while preserving most of the gains it accumulated after last week’s rare, coordinated currency action by Japan and the United States.
Over the prior three trading sessions, the yen had strengthened by as much as 5% after Japan confirmed it carried out the joint yen-buying intervention with the U.S. on Friday. That move on Friday was followed by further gains into Monday, when the currency hit a three-month high.
On Tuesday, the currency traded lower by 0.25% at 157.56 per dollar, trimming part of its advance from the previous session peak of 155.20. Even after the pullback, the yen remains well above its 40-year low of 163.99 recorded in July.
Market commentators have characterized the joint operation as a message to traders against heavy short positions in the yen. Axel Merk, chief investment officer at Merk Investments, said the intervention appears intended to change market behaviour. He said: "As most people would agree that interventions in the currency markets have a limited impact in the medium term. So I think its about signalling and posturing to tell the market, 'Hey! Dont short the yen so much!'"
Against the euro, the yen fell 0.33% to 181.36, after reaching an almost nine-month high of 179.435 on Monday. Those moves reflect the wider adjustment in currency pairs following the confirmed coordinated action.
Summary
The yen retraced slightly on Tuesday but kept most of the improvement it recorded after Japan and the U.S. disclosed a coordinated yen-buying intervention. The currency remains considerably firmer than the July low, and analysts describe the intervention as a signalling tool aimed at curbing large short positions.
Key points
- The yen strengthened up to 5% across three trading sessions after the confirmed joint intervention.
- On Tuesday the yen traded at 157.56 per dollar, down 0.25% from the previous session when it reached 155.20.
- Against the euro the yen was down 0.33% at 181.36, below Mondays near nine-month high of 179.435.
Sectors likely impacted
- Exporters and importers that are sensitive to yen exchange-rate moves.
- Foreign exchange and broader financial markets that react to central bank and government interventions.
Risks and uncertainties
- Interventions in currency markets are commonly viewed as having limited impact over the medium term, creating the risk that gains may be temporary.
- The yen has already given back some of its advance, indicating potential for further reversals in exchange-rate levels.
- It is uncertain whether the signalling effect of the coordinated action will deter market participants from shorting the yen as intended, leaving outcomes dependent on market reaction.
Note: This report limits itself to the facts and commentary available regarding the coordinated intervention and subsequent currency moves.