The yen fell slightly against the dollar on Thursday (May 2), reversing direction after a sudden surge late on Wednesday that traders and analysts were quick to attribute to intervention by Japanese authorities. The yen was 0.4 per cent lower at 155.18 per dollar as at 1055 GMT, retracing about half of its late Wednesday surge from around 157.55 to exactly 153 over a period of about 30 minutes.
The sharp move on Wednesday came in a quiet period for markets after Wall Street had closed, and hours after the US Federal Reserve had wrapped up its policy meeting.
The dollar was already on the back foot as Fed chair Jerome Powell confirmed the central bank’s easing bias, even as he reiterated that sticky inflation meant interest rate cuts may be a while in coming.
Japan’s vice-finance-minister for international affairs, Masato Kanda, who oversees currency policy at the MOF, told Reuters he had no comment on whether Japan had intervened in the market.
The dollar remains up more than 10 per cent against the yen this year, as traders push back expectations on the timing of a first Fed rate cut, while the Bank of Japan (BOJ) has signalled it will go slow with further policy tightening after raising rates in March for the first time since 2007.
The gap between long-term government bond yields in the two countries is 371 basis points. That helped lift the dollar to a 34-year peak of 160.245 yen on Monday and also spurred a sharp reversal, which official data suggested was because of Japanese intervention totalling about US$35 billion.
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The BOJ’s official data on Thursday indicated Japan may have spent a further US$23.59 billion on Wednesday in its attempt to shore up the currency.
The dollar index, which measures the currency against the yen, euro, sterling and three other major peers, was little changed at 105.72 on Thursday, following a 0.6 per cent retreat on Wednesday from near six-month highs.
The euro was down 0.1 per cent at US$1.0705, after climbing 0.5 per cent in the previous session.
Sterling slipped 0.1 per cent to US$1.2513, paring back some of Wednesday’s 0.3 per cent rise.
As widely expected, the Fed held rates steady on Wednesday and Powell stressed it “will take longer than previously expected” for policymakers to become comfortable that inflation will resume the decline towards their 2 per cent target. At the same time, he characterised the risk of more hikes as “unlikely.”
“There was a collective sigh of relief in the financial markets after the Fed refrained from increasing its hawkishness,” said Jack Mclntyre, portfolio manager for global fixed income and related strategies at Brandywine Global.
“Think of this outlook as ‘high for longer’ as opposed to ‘higher for longer.’ The latter implies rate hikes, which is not today’s story.”
Hotter-than-forecast Swiss inflation in April drove the Swiss franc higher against both the euro and dollar.
“The probability of another cut (from the Swiss National Bank) in June is a little less likely but I think they will still be quite pleased with the inflation situation,” said Niels Christensen, chief analyst at Nordea. “I would still expect another cut in June, especially if the European Central Bank also cuts rates next month.” REUTERS