Yen Rebounds After Japan Warns of Intervention; Fed in Focus

The yen staged a rebound against the US dollar and the euro on Wednesday, following a stern warning from Japan’s top currency diplomat, Masato Kanda. Kanda’s remarks signaled Japan’s unease with the yen’s rapid depreciation this year.

The dollar fell 0.35% to 151.15 yen, while the euro also slipped to 159.44 yen, both pulling back from record highs reached against the Japanese currency the previous day.

Kanda, emphasizing Japan’s vigilance, stated that authorities were “on standby” to counter “one-sided, sharp” movements in the yen, clearly aimed at speculators. This caution came as the yen dipped below the critical 150-level mark.

Yen in a Free Fall in 2023

The yen’s decline has been notable, with a decrease of over 15% against the US dollar in 2023. This depreciation has been attributed to the widening gap in bond yields between Japan and other nations.

Furthermore, the Bank of Japan (BOJ) adjusted its approach to 10-year government bond yields, moving away from a hard cap to define a reference rate on Tuesday. This decision disappointed some investors who expected a more hawkish stance, aligning the BOJ’s stance more closely with other central banks worldwide.

“The BOJ’s normalization is relatively fast for BOJ standards but slow relative to what we are seeing in the rest of the world,” Reuters reported, citing Claudio Irigoyen, global head of economics at Bank of America Global Research.

All Eyes Turn to the US Federal Reserve

Market attention now turns to the Federal Reserve’s policy decision, with expectations of unchanged interest rates between 5.25% and 5.5%. Investors eagerly await insights from Fed Chair Jerome Powell, seeking hints about future rate movements and the possibility of further hikes.

“The market definitely will try to probe for where the red line is for the Ministry of Finance,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets, per a Reuters report.

“It’s clear that it’s not at 150 (per dollar) but you don’t want to be out there in front when the Japanese authorities intervene.”