The yen strengthened on Friday amid growing speculation that Japanese authorities may intervene again in the foreign exchange market.
During New York trading, the yen gained as much as 0.9% against both the US dollar and the euro. According to two people familiar with the matter, the New York Federal Reserve requested quotes for the yen against the euro from at least two major US banks. The sources spoke on condition of anonymity as the request was not public.
"Given the limited reaction of the yen, traders may remain cautious about potential follow-up intervention," said Alex Loo, an economist at TD Securities in Singapore.
On Thursday, the yen surged as much as 3.3% after Japan appeared to intervene in the foreign exchange market. Based on Bank of Japan accounts released on Friday and estimates from money brokers, the intervention amounted to approximately 8.45 trillion yen ($52.8 billion). This could mark the largest single-day intervention in Japan's history. Data from CME Group showed that heavy yen buying on Thursday drove trading volumes to their highest level in nearly 12 years.
However, despite the scale of the intervention, its impact on the foreign exchange market remained limited. The yen has fallen to its lowest level since 1986 in recent months, weighed by factors such as rising oil prices, a large fiscal deficit, and the wide interest rate differential between Japan and the US.
"Ultimately, unless fundamentals change, currency intervention may only have a temporary impact on exchange rates," said Yusuke Miyairi, a foreign exchange strategist at Nomura International.
Meanwhile, the Bank of Japan on Friday decided to keep its interest rate unchanged, in line with economists' expectations. Governor Kazuo Ueda provided little new support for the yen in his press conference following the decision. He left the door open for a rate hike at future meetings but did not signal that it was a high-probability event.
Separately, some market participants are again speculating that authorities may step in again after US Treasury Secretary Scott Bessent posted on social media that the US-Japan relationship is "strong and well-coordinated." In a prior interview with Fox Business, he said the yen is "significantly undervalued" and that "excessive volatility" is unhealthy.
Intervention "can reduce the sensitivity of the exchange rate to cyclical momentum for a period of time," a team at Goldman Sachs including Michael Cahill and Lexi Kanter wrote on Friday. "While this is not a 'sustainable solution,' it does work, and Japan has ample foreign exchange reserves to maintain this policy for some time."
A Bloomberg strategist noted: "The widening US-Japan yield spread remains a key factor supporting the dollar/yen at high levels. Ueda's warning about upside inflation risks was not enough to suggest the Bank of Japan will bring forward its rate hike timeline, especially given his emphasis on the need to assess the impact of previous tightening, as well as developments in the Middle East, artificial intelligence, and the exchange rate."
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Editor: Ding Wenwu
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