The yen trimmed gains against the dollar on Friday, but was still poised for its strongest weekly rally in more than two months after Japanese authorities stepped into the markets to haul the currency back from near two-year lows.
Investors remained on high alert for further action from Japan’s Ministry of Finance (MOF), with May 1 holidays thinning markets around Asia. A Japanese official hinted that further intervention could come as the nation heads into its Golden Week holidays next week.
The euro edged higher after the European Central Bank signaled it was ready to hike interest rates. The Aussie dollar held at a near four-year high as global shares remained buoyant.
“The difficulty is they are sort of fighting against some underlying fundamentals there,” Ken Crompton, the head of rates strategy at National Australia Bank, said about Japan’s intervention efforts.
“The weak yen is probably there for a reason and how successful the MOF will be in fighting against the tide on a sustained basis is sort of hard to see at the moment,” he added.
The yen stepped back 0.35% against the greenback to 157.15 per dollar, but Thursday’s surge put the Japanese currency on course for a 1.4% jump this week, the most since mid-February.
The dollar index, which measures the greenback against a basket of currencies, fell 0.04% to 98.11, while the euro inched up 0.04% to US$1.1735.
Japan’s top currency diplomat Atsushi Mimura on Friday said speculative positions remain in markets, putting traders on notice of possible further strikes to bolster the yen during the holiday period. Two sources familiar with the matter told Reuters that officials had intervened to buy the yen on Thursday, after it hit its weakest level against the dollar since July 2024.
The sudden jolt in the dollar-yen rate occurred in London trading hours and followed earlier comments from Japanese Finance Minister Satsuki Katayama that the time for “decisive” action was nearing.
“Past intervention has had only a temporary effect on the yen if the underlying fundamentals haven’t shifted,” Kristina Clifton, senior currency strategist at Commonwealth Bank of Australia, wrote in a note. “Continued yen depreciation may prompt several rounds of intervention, which in turn would cause larger two-way swings in USD/JPY.”
The currencies of Japan and other nations dependent on energy imports had been in decline since late February, when US-Israeli strikes on Iran started, leading to the closure of the Strait of Hormuz shipping lane for oil.
The dollar index slid 1.76% in April after a surge in March that underscored the US economy’s relatively lower exposure to higher oil prices compared with the euro zone and Japan.
Data on Friday showed Japan’s core inflation slowed in April as government subsidies blunted the effect of energy prices, but analysts expect price gains to accelerate from here, keeping pressure on the central bank to hike rates.
“Combined with the Bank of Japan’s ‘hawkish hold,’ if the market starts to price in a rate hike at the next meeting in June, yen buying could gather momentum,” Sakura Koike, an analyst at Mitsubishi UFJ Bank, said in a note.
Japan bond outflows surge as oil prices raise inflation worries
Foreign investors sold Japanese bonds heavily in the week through April 25 on inflationary worries due to rising oil prices and caution ahead of the policy decision by the Bank of Japan.
Foreigners ditched a net 786.9 billion yen (US$5.01 billion)worth of Japanese long-term bonds, a significant rise from 294.7 billion yen in net sales the prior week. They also shed short-term bonds of a net 1.12 trillion yen, data from Japan’s Ministry of Finance showed on Friday.
The BOJ on Tuesday kept interest rates steady but three of the nine-member board proposed a hike, signaling policymakers’ concerns over inflationary pressures from a rise in oil prices.
The 10-year Japanese government bond yield reached a 29-year high of 2.525% on Thursday as oil prices surged to a four-year high amid a stalemate in the US-Iran peace negotiations.
Foreigners, meanwhile, bought 807.9 billion yen of Japanese stocks as they extended the recent buying streak into a fourth straight week. Foreigners pumped roughly 10.08 billion yen into these stocks, in these four successive weeks.
At the same time, Japanese investors bought a net 41.2 billion yen of foreign stocks and remained net buyers for the 10th straight week.
They, however, ditched foreign long-term bonds of 887.7 billion yen and short-term instruments of 263.8 billion yen.
