Yen Climbs for Third Straight Session as Traders Watch for Intervention

The Japanese yen continued its upward trend for the third straight session on Monday, maintaining a state of alert among traders for potential further intervention in the foreign exchange market by Tokyo and Washington. This move follows coordinated efforts last week aimed at bolstering Japan's currency.

Meanwhile, oil prices experienced a sharp decline of over $4 per barrel. This drop was attributed to U.S. President Donald Trump's decision to hold back from further aggressive actions against Iran, which in turn weakened the appeal of the U.S. dollar as a safe-haven asset. Iran has also stated that it is not currently engaged in talks with the United States.

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Dollar/yen 1.5-2 standard deviations above the long-term trend have been a useful guide for identifying when intervention risk enters the danger zone.

Rising energy prices are anticipated to disproportionately affect the economies of the euro zone and Japan, both significant energy importers. In contrast, the United States is perceived to be more resilient to oil price shocks. Japan's finance ministry confirmed on Monday that Japan and the United States had conducted joint yen-buying intervention and signaled a readiness to take further action if necessary.

The yen's advance extended to other major currencies, including the euro and the British pound, fueling speculation about continued market involvement by Japanese authorities. Analysts at Societe Generale noted that intervention risks increase when the dollar/yen pair moves significantly above its long-term trend, identifying a specific range as a potential danger zone. The yen reached its strongest point in approximately three months against the dollar before slightly retracting.

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A substantial build-up of short yen positions had occurred, and the unwinding of these positions tends to accelerate yen appreciation.