Precise Investors Editorial Team
The yen has dropped in recent sessions despite the Bank of Japan raising interest rates to 0.75% from 0.5% last Friday, taking borrowing costs to a level unseen in 30 years
The yen strengthened on Monday on a technical recovery after Japanese officials warned against “one-sided and sharp” currency moves, signalling readiness to take appropriate action in what analysts viewed as a clear hint of intervention.
The yen has dropped in recent sessions despite the Bank of Japan raising interest rates to 0.75% from 0.5% last Friday, taking borrowing costs to a level unseen in 30 years. It is poised to end December lower, for a fourth straight month.
Overall, the Japanese yen has sunk for reasons beyond the interest-rate hike from the BOJ which was heavily priced in. One thing is that the rate down the line may not be moved unless there is evidence of improved fundamentals, said Juan Perez, director of trading at Monex USA in Washington.
There is little to give much confidence about the yen and now we need to watch for the possibility of an FX intervention. But when that has happened the last few times, it accomplished little while being very expensive, he added.
Atsushi Mimura, Japan’s top currency diplomat, told reporters on Monday that recent FX moves were one-sided and sharp, adding that the government will take appropriate action against excessive moves.
Chief Cabinet Secretary Minoru Kihara also warned about the yen’s continued weakness and said it was important that “the currencies should move in a stable manner, reflecting fundamentals.”
Marc Chandler, chief market strategist at Bannockburn Global Forex in New York (U.S.), said the verbal intervention “makes sense after the rate hike,” noting that potential Japan action to boost the yen was unlikely until the BOJ raised rates.
Now that the BOJ raised rates, they can say that they’ve tightened monetary policy and that the yen is deviating from fundamentals. And so you’ve got a bit of short-covering on the yen as a result, he added.
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