The Japanese yen rallied notably on Thursday after Tokyo officials, including the finance minister, issued forceful warnings that intervention to bolster the currency could be forthcoming. Dollar/yen was last trading at 156.72, down more than 2% on the day in a dramatic move that prompted traders to question whether official intervention had taken place.
Attempts to reach the Japanese finance ministry's foreign exchange division for immediate comment were unsuccessful.
Market reaction and strategist views
Kamal Sharma, senior FX strategist at Bank of America in London, said:
"We don’t know (if it’s intervention." "There’s been no confirmation from the BOJ but there is a heightened sense of urgency this morning on the willingness to intervene." "I suspect the market was poised for a move once we got over 160 yesterday and now we are back down near 157." "This (move) has taken place in poor liquidity in Asia hours so there could have been an exacerbation."
Francesco Pesole, currency strategist at ING, said:
"We cannot fully exclude the BoJ is intervening, but this looks more like an exacerbated reaction to the final warning by (Top currency diplomat Atsushi) Mimura earlier this morning." "There has been some speculation the BoJ may intervene during a holiday period. Some EU markets are closed tomorrow and UK markets are closed on Monday, so perhaps some market participants are closing short-yen positions ahead of that."
Kenneth Broux, currency strategist at Societe Generale, added:
"It certainly looks like it and short covering."
Broader context from Tokyo strategists
Hirofumi Suzuki, chief FX strategist at SMBC in Tokyo, noted the market reverberations from Tokyo's warnings:
"The ’final warning’ comment has rattled a few accounts for sure."He expanded:
"It is unclear whether there was intervention, but what matters is that USD/JPY moved sharply after strong warnings from the authorities." "There is also a possibility that the authorities are taking action through a combination of verbal warnings and measures such as rate checks." "For market participants, with the situation still uncertain, USD/JPY is likely to take on a more corrective tone for the time being."
Observations
The move occurred amid thin Asian trading liquidity, according to comments cited by strategists, and followed explicit commentary from senior Tokyo officials. Market participants and strategists cited a mix of factors potentially at play, including verbal warnings, possible active measures and traders covering short-yen positions ahead of holiday closures in parts of Europe and the UK.