Yen gains as traders brace for fresh intervention

TOKYO: The yen has surged against a weaker dollar after an unexpectedly soft US payrolls report last Friday, with traders on alert for any sign authorities were preparing to intervene in the Japanese currency again.

The currency gained 0.4% on the day to trade at 157.76 per dollar as of 5pm in New York.

Despite the move, the yen ended the week slightly weaker than where it began, after a volatile period following interventions by Japanese and US authorities.

“The market is expecting it because that last round came when the US dollar was already under pressure,” said Lee Ferridge, a strategist at State Street, adding that last Friday’s move didn’t appear to be related to intervention.

“Its always easier to push on an open door.”

Hedge funds dramatically cut bearish bets on the yen after the interventions helped stabilise the currency, according to Commodity Futures Trading Commission (CFTC) data released last Friday for the week through Aug 4.

The yen had been near a four-decade low of around 164 per dollar last week before the first joint yen-buying operation from Japan and the United States since 1998.

The effect of last week’s intervention had faded in recent days, fuelling speculation authorities would act again.

It also underscored the limits of intervention in reversing the yen’s longer-term decline, with a wide interest-rate gap to the United States, Japan’s high debt load and geopolitical uncertainty continuing to weigh on the currency.

The United States and Japanese officials have warned investors they’re determined to keep defending the yen if needed.

Morgan Stanley strategists wrote last Friday they adopted a bearish bias on the yen while keeping the neutral stance.

They see the yen gradually easing against the greenback unless more joint interventions in the foreign-currency market.

“In the futures and options markets, leveraged funds cut their net short yen positions by roughly half to about 63,600 contracts as of last Tuesday,” the CFTC said.

That marked a sharp step back from the end of June, when bearish bets swelled to nearly 138,000 contracts, the largest net short position since 2007.

While the Bank of Japan left its benchmark rate unchanged last week, overnight index swaps imply about a 60% chance of a rate hike by September.

Furthermore, Japan’s top currency official, Atsushi Mimura, said authorities would respond to foreign-exchange moves in coordination with monetary policy. — Bloomberg