Yen firms after Japan supports currency for first time since 1998

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  • “We have taken decisive action,” says Japan’s vice finance minister
  • Dollar/yen has widest spread between daily high and low since 2016
  • Sterling, Swiss franc, Norwegian crown slide after muted rate hikes
  • Dollar hits new multi-year high versus sterling, euro in early trade

LONDON, Sept 22 (Reuters) – The Japanese yen strengthened on Thursday after authorities intervened in the foreign exchange market to shore up the battered currency for the first time since 1998, although trading was choppy.

The dollar was last down 2% at 141.2 yen. It hit a low of 140.31 after the intervention, having earlier reached a fresh 24-year peak of 145.9 yen.

The spread between the day’s high and low for the pair was the widest since June 2016.

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The euro, Australian dollar and pound also plunged against the Japanese currency, before regaining a little ground. , ,

“We have taken decisive action,” Vice Finance Minister for International Affairs Masato Kanda told reporters, responding in the affirmative when asked if that meant intervention. read more

Confirmation of the intervention came just hours after the BOJ decided to maintain low interest rates to support the country’s fragile economic recovery.

BOJ Governor Haruhiko Kuroda told reporters the central bank could hold off on hiking rates or changing its dovish policy guidance for years.

In contrast, central banks around the world, most notably the US Federal Reserve, are raising rates aggressively and the policy divergence has weighed on the yen.

“Unless there is a clear shift in the fundamental backdrop driving Japanese yen weaker, the ability to turn the trend is limited,” said Derek Halpenny, head of global markets research at MUFG.

“The Ministry of Finance may see this as buying some time and hope that the Fed completes its tightening cycle by year-end, which may help to bring some degree of turn in the trend.”

Even after Thursday’s moves, the dollar is still up 23.4% against the yen this year.

Yen interventions 1990s-2020s

CENTRAL BANK BONANZA

In a very busy day for markets, the pound pared the small advance it had made in London trading after the Bank of England raised interest rates by 50 basis points.

The hike was in line with expectations but markets had been pricing in a small chance of a larger 75 bp move.

Sterling was last 0.16% higher against the dollar at $1.1288 , not too far from a fresh 37-year low of $1.1213, hit in Asia trading.

“I’m quite surprised that the bank didn’t take this opportunity to go 75 bps, particularly given the cover from some of the other global central banks. The pound looks particularly vulnerable here if the bank stays behind the curve,” said Hugh Gimber, global markets strategist at JP Morgan Asset Management.

The euro was last 0.3% higher against the dollar at $0.9868, up from a new 20-year trough hit Asia trade.

The dollar index – which measures the greenback against a basket of six other major currencies – stood at 110.76, sliding from a 20 year high of 111.81 hit early in the day following the conclusion of the Fed’s policy meeting on Wednesday.

The US central bank issued new projections showing rates peaking at 4.6% next year with no cuts until 2024. It raised its target interest rate range by another 75 basis points (bps) overnight to 3%-3.25%, as was widely expected. read more

The dollar was already supported by demand for safe-haven assets after Russian President Vladimir Putin announced he would call up reservists to fight in Ukraine. read more

Separately, the Swiss franc tumbled after Switzerland’s central bank raised rates by 75 bps, when some had talked up the possibility of a full percentage point move. read more

The dollar and euro both climbed around 2% against the franc, with the dollar last at 0.9837 and the euro at 0.9681.

“I think the market reaction, the EUR/CHF rally, is a bit overdone,” said Chris Turner, global head of markets at ING.

The Norwegian crown eased against the euro after the central bank there hiked interest rates by an expected 50 bps, and said there may be a more gradual approach to tightening ahead. read more

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Reporting Alun John in London, additional reporting by Kevin Buckland in Tokyo, and Harry Robertson in London; Editing by Emelia Sithole-Matarise, Raissa Kasolowsky, Kirsten Donovan

Our Standards: The Thomson Reuters Trust Principles.

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