Yen Surges, Renewing Focus on Possible Government Intervention

A sharp rise in the yen has revived speculation that Japanese authorities may be preparing to intervene in currency markets. The yen strengthened 1.2 percent on Wednesday during US trading, reaching 158.22 to the dollar, then continued higher in early Tokyo trading on Thursday, briefly touching 157.92.

The move came before the release of a key US employment report and put pressure on the dollar. Traders suspected officials might be contacting banks to check exchange rates, a step often viewed as a precursor to intervention.

Carol Kong, a strategist at the Commonwealth Bank of Australia, said the yen’s move was not large enough to suggest direct government intervention. Some market participants instead linked the rise to a rate check. Marito Ueda, president of SBI FX Trade, said he also did not believe the move resulted from intervention or a rate check, but added that the market was “very cautious” around the 160 level.

The yen had already begun strengthening after a Bank of Japan board member raised the possibility of a large or successive series of rate increases. Markets generally expect the central bank to raise rates at its September policy meeting.

Japan’s Finance Ministry said the country had spent a record $96.4 billion over the past month to support the yen. Officials have repeatedly said the key issue in deciding whether to intervene is the speed and orderliness of currency movements, rather than a particular exchange-rate level. Nathan Thooft of Manulife Investment Management said the latest move showed how sensitive market positioning had become, while Bloomberg strategist Brendan Fagan said it reflected heightened market sensitivity after Japan’s heavy support for the currency in July.

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Very cautious