Dollar Strengthens Against Yen Despite Yentervention Concerns

The US dollar has gained significant ground against the Japanese yen, even amidst fears of intervention by the Bank of Japan. During yesterday’s trading session, the USD/JPY pair reached 158.30, following an earlier low of 157.97. Tokyo data reveals that approximately 2.14 trillion Japanese yen (equivalent to 13.5 billion US dollars) was spent last Friday to support the yen’s value.

This brings the total intervention spending in the exchange rate over the past week to around 6 trillion Japanese yen. While the Japanese government typically remains tight-lipped about its intervention practices, Prime Minister Yoshihide Suga expressed readiness to take necessary measures to address currency market volatility.

Yenterventions refer to a suspected or rumored intervention by the Bank of Japan in the currency markets to influence the value of the Japanese yen. The yen is one of the world’s most traded currencies. Its value is influenced by various factors, including the performance of the Japanese economy, BoJ policies, the yield differential between Japanese and US bonds, and risk sentiment among traders.

BoJ’s Role:

The Bank of Japan has a mandate related to currency control. Occasionally, the BoJ directly intervenes in currency markets, often with the goal of lowering the value of the yen. However, such interventions are infrequent due to political considerations and concerns from Japan’s main trading partners.

In a recent instance, the USD/JPY pair experienced significant movement. The yen weakened sharply against the US dollar (USD) after cooling US Consumer Price Index (CPI) inflation data was released. Unconfirmed rumors suggested that a “Yentervention” occurred alongside the CPI data release, causing the yen to strengthen broadly across the board.

Yenterventions can trigger stops for bullish traders, leading to selling and lowering entry prices. They may also entice short players to take new positions at lower levels.