Since October 2022, the U.S. dollar has been at its lowest level versus the yen, which has surpassed the 150-dollar threshold. After reaching a one-year high of 150.165 during the U.S. trading session, the dollar fell to 147.30 yen on Tuesday. Early on Wednesday, the pair traded in Tokyo at about 149 yen.
In Tokyo trading, the euro and the pound both declined against the yen and hit two-month lows. After the yen dropped by 0.7 percent to 155.99, the euro dropped to 154.39. Sterling dropped to 179.96 yen, a 0.8 percent fall.
Market executives are worried that the Japanese monetary authorities may have stepped in to stop the yen from dropping any further. Japanese Finance Minister Shinichi Suzuki said that his country is prepared to intervene and is closely monitoring the currency market. Any decision regarding an intervention, however, will be based more on market volatility than on particular yen levels.
Vice Minister of Finance for International Affairs Kanda Masato highlighted worries over market behavior. He promised that, if required, the government will take the appropriate action to control undue volatility.
The official in charge of foreign exchange policy at the Japanese finance ministry did not confirm or deny any intervention in currency markets in light of recent changes in the dollar-yen exchange rate. The Federal Reserve Bank of New York similarly stayed silent.
Michael Brown, a market analyst from Trader X, said, “In all honesty, this appears to be an intervention.”
Despite no official confirmation, Colin Asher, a senior economist at Mizuho, hypothesised that it was likely that the Japanese financial authorities intervened in the market because of an unstable economic environment. He stated that this year’s increase in the dollar-yen exchange rate was less than it had been the year before, adding that “people may have anticipated intervention and reacted accordingly.”
determinants of market fluctuations
Some observers contest the likelihood that the Japanese government will become involved in the current scenario.
Some people now believe there was interference because of the decline in the dollar-yen exchange rate. I disagree, though,” he said. “Last year, Japan carried out three interventions, none of which took place during American trading hours.”
Rising yields on U.S. Treasuries and Japanese government bonds are what led to the break of the 150 barrier, according to Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets.
Stretch said that traders who had bought USD versus JPY had predetermined levels at which they would close out their holdings. “These sell orders were executed as a result of the recent sharp price movement, amplifying the immediate market correction.”
The dollar’s value increased as a result of positive U.S. manufacturing data and repeated remarks from Federal Reserve officials stressing the need for additional monetary tightening. Michael Barr, the Fed’s vice chair for supervision, said the institution planned to keep interest rates high for a considerable amount of time.
The U.S. manufacturing index rose from 47.6 in August to 49.0 last month, the highest level since November 2022, according to recent statistics. The longest duration below 50 points has existed during the 2007–2009 Great Recession.
Furthermore, on Tuesday, benchmark Treasury yields reached a 16-year high of 4.706 percent thanks to a last-minute accord that avoided a government shutdown over the weekend.
The yen declined, according to NHK, as a result of anticipation of the Fed continuing to raise interest rates. Investors sold yen in favour of the dollar as a result of the widening spread between the rates on U.S. and Japanese bonds, which made the currency more attractive to them.
The expiration of currency options at the 150 level, according to several traders, was likely what caused Tuesday’s dramatic change in the value of the yen. JPMorgan analysts in Tokyo had earlier issued a warning that this situation would cause market instability.