Yen settles down after wild ride

It was certainly a day to remember for the Japanese yen on Thursday. USD/JPY traded in a stunning 550-point range, as the yen fell sharply before reversing directions and closing the day up over 1 per cent. Things have calmed down today, as USD/JPY is trading quietly at 142.37.

Japan’s currency intervention sends yen flying

The yen has been on a dreadful slide, losing about 20% of its value against the US dollar this year. The markets had grown accustomed to verbal rhetoric from the Bank of Japan and the Ministry of Finance (MoF), which expressed their concerns about the yen’s depreciation and warned that all options were on the table, with no action to back up the comments. On Thursday, the yen breached the psychological level of 145, and this proved to be a line in the sand for Japanese officials.

The day started with a rather muted BoJ meeting, with policymakers maintaining its ultra-loose policy and declaring that the Bank would increase stimulus if needed. This pushed the yen to a low of 145.90, which triggered a stunning response from the MoF, as it intervened to prop up the yen for the first time since 1998.

The yen soared as much as 2.5% after the intervention, but the big question is whether such unilateral action will last, or will it only delay the yen’s downward trend. US Treasury yields are rising fast, and unless the BoJ tweaks policy, the US/Japan rate differential will continue to widen, which will send the battered yen even lower.

Another factor weighing on the yen is the contradictory policy between the BoJ and MoF, which was apparent yesterday and caused the yen’s wild ride. The MoF has intervened to prop up the yen, while at the same time the BoJ is keeping JGB rates at low levels, and Governor Kuroda has said more than once that a weak yen is not necessarily a bad thing. These conflicting signals invite speculation and yesterday’s currency intervention, although a bold move, may do little more than slow down the yen’s descent.

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USD/JPY Technical

• USD/JPY tested resistance at 144.71 but then retreated. Above, there is resistance at 146.49
• USD/JPY is testing support 143.19. The next support line 141.88

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