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The Dollar/Yen is trading lower at the mid-session on Friday on reports that Japanese authorities likely intervened to curtail the slide in the country’s beat-up currency, according to Reuters.
Early in the session, the Forex pair hit a 32-year high at 151.945, before plunging to 146.205. The steep break sent a clear signal to traders that the Ministry of Finance stepped in to buy the Japanese Yen.
At 16:00 GMT, the USD/JPY is trading 146.929, down 3.219 or -2.14%. Additionally, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) is at $63.55, up $1.37 or +2.20%.
Traders also said large blocks of orders are being traded, which is indicative of an intervention. “That typically means either larger institutions are moving money or that a central bank is intervening in size,” Karl Schamotta, chief market strategist, at Corpay in Toronto concurred. He also added, “The clearest evidence is just the scale of dollar selling that is happening.”
Japan’s Ministry of Finance declined to comment.
The Only Surprise was the Timing of the Intervention
Speculation that Japan would follow up its September intervention and step into the market again has grown over the past week as its currency had slipped to 32-year low beyond the psychological 150 Yen level.
Based on a series of warnings from Japanese officials over the past week, the move by Japan was widely expected, traders just didn’t know when. Some felt it was most likely to take place during Japanese business hours. But the move to intervene during the U.S. session on a Friday was likely designed to catch traders by surprise and perhaps have a greater bearish impact on the USD/JPY.
Early Friday, Japanese officials were still warning that the decision to intervene would be necessary to drive out excessive speculators.
Finance Minister Shunichi Suzuki said that authorities were dealing with currency speculation “strictly”.
“We are confronting speculators strictly,” Suzuki told a regular news conference, when asked whether the Japanese Yen was under attack by speculators. “We cannot tolerate excessive moves by speculators. We will respond appropriately while watching currency market movements with a high sense of urgency.”
Short-Term Outlook
Although an intervention hasn’t been acknowledged as of the mid-session, the chart pattern certainly looks like one took place. The move is very similar to the intervention sell-off on September 22.
If traders react the same way as they did in late September then look for a couple of weeks of sideways to higher price action before the USD/JPY resumes its uptrend.
Japanese officials may have knocked out a few of the weaker speculators, but they don’t have enough fire-power to takeout the stronger long traders.
New buyers may have stepped in on the price slide because they believe the Dollar/Yen still has more upside potential given the divergence in policy between the hawkish Federal Reserve and the ultra-dovish Bank of Japan.
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