Volatile Yen Faces Intervention Watch as Other Currencies Remain Subdued
Japan’s currency steadies after a 2% weekly slide, while traders weigh central-bank tightening signals and political developments in Europe.
TOKYO, Sept 21: The Japanese yen remained in focus on Monday after a sharp weekly decline raised expectations that Tokyo could step in to support the currency. The broader foreign exchange market was relatively subdued as investors assessed the outlook for interest rates following fresh policy moves by major central banks.
The yen was trading slightly stronger at 156.64 against the US dollar after losing about 2% last week. Japanese financial markets were closed for a three day holiday, reducing liquidity and leaving traders alert to possible official action.
The Bank of Japan raised its policy rate on Friday to 1.25%, its highest level in 31 years. However, the move failed to provide lasting support to the yen. Two dissenting votes and the absence of stronger forward guidance disappointed investors, triggering a sharp decline in the currency.
Market attention increased further after the Nikkei newspaper reported that Japanese officials had carried out rate checks. Such checks involve authorities requesting currency quotes from banks to assess market conditions and are widely regarded by traders as a possible step before direct intervention.
The yen had reached a seven month high earlier in September as expectations grew that the BOJ would accelerate its rate increases, while early signs of Japanese investors bringing funds back home also supported the currency. It has since given up part of those gains.
HSBC Chief Asia Economist Fred Neumann said the BOJ faces a difficult task in convincing markets of its willingness to maintain a tighter policy stance. He said investors could continue testing the central bank’s commitment to raising rates in the coming months.
The euro was little changed at $1.1482 after voting projections indicated that Germany’s far-right Alternative for Germany emerged ahead in state elections in the country’s northeast. The result added pressure on Chancellor Friedrich Merz’s conservative government.
The dollar index, which measures the US currency against six major currencies, stood around 100.23 after rising more than 1% last week. Investors continued to assess the Federal Reserve’s latest policy signals and the possibility of further rate increases.
Markets were pricing in a 55% probability of a US rate hike at the Fed’s October meeting, compared with 42.5% a week earlier, according to the CME FedWatch tool.
Sterling was trading at $1.339, while the Australian dollar stood at $0.7129 and the New Zealand dollar at $0.5721.
