Japanese authorities likely intervened to support the yen on Monday – creating a sudden surge against the dollar – and we can expect more interventions in the coming days, predicts the CEO of one of the world’s largest independent financial advisory and asset management organizations.
The prediction from Nigel Green of deVere Group comes after trading at its weakest level in 34 years at 160.245 per dollar in the Asian morning, the yen jumped from around 159.5 per dollar to 155.2 over an hour of one-way trade.
He says: “With the yen having languished at levels not seen in over three decades, and which has depreciated 11% this year against the dollar, this sudden jump is almost certainly the authorities stepping in to try and stabilize the currency.
“Such rapid movements are unlikely to be solely driven by natural market forces.
“If this is, as we suspect it is, an intervention, we would be surprised if this is the only one we will have over the next few days and weeks to maintain stability and restore confidence in the currency.”
Nigel Green continues: “We expect that US Federal Reserve’s policy review on May 1 will further fuel expectations that Fed rates cuts will again be pushed back as US inflation remained elevated.
“This could then mean intervention alone will not be enough to put a floor under the yen.
“Indeed, the effectiveness of such interventions, is always subject to debate, as they often yield only temporary relief and may fail to address the underlying factors driving currency movements.”
The yen’s persistent weakness, despite the Bank of Japan’s recent departure from negative interest rates, has raised concerns about its long-term viability and its impact on the Japanese economy.
Looking ahead, the focus will be on how Japanese policymakers tackle the delicate balance between supporting the yen and maintaining competitiveness in export markets.
The challenge lies in implementing measures that promote stability without disrupting broader financial markets.
“The reaction of other major economies to Japan’s intervention efforts will be closely monitored, as exchange rate dynamics are influenced not only by domestic policies but also by international developments.
“Any perceived escalation in currency manipulation could trigger retaliatory measures, further complicating efforts to manage exchange rate fluctuations,” warns Nigel Green.
The impact of Japanese intervention extends to broader economic dynamics and geopolitical considerations. A stronger yen could dampen Japan’s export competitiveness, potentially weighing on corporate profits and economic growth.
“This, in turn, could have ripple effects on global supply chains and trade flows, affecting businesses and consumers worldwide,” notes the deVere Group chief executive.
In 2022, Japan took action in the currency market on three occasions. They sold the dollar to purchase yen, initially in September and then again in October. These interventions occurred as the yen’s value declined towards 152 to the dollar, reaching a 32-year low at that point. It’s estimated that Tokyo allocated approximately $60 billion to support the currency during these interventions.
He concludes: “Monday’s jump by the yen is almost certainly an intervention. We expect more interventions by the Japanese authorities to support the beleaguered currency.”
