Japan’s yen surged 3%, the most in a day in over three years on Thursday, following stark warnings from Tokyo officials that intervention to prop up the currency could be imminent.
The dollar was last trading at 155.94 yen by 1250 GMT, as the Japanese currency strengthened sharply. The U.S. currency was on track for its biggest one-day drop since December 2022, when it fell 3.8% in a day.
Japanese Finance Minister Satsuki Katayama said earlier on Thursday that the timing to take “decisive action” in the market was nearing, in her strongest signal yet of potential currency intervention to prop up the sagging yen.
Some market sources said the decline, which started in earnest around 1026 GMT, bore the hallmarks of possible official buying. In past episodes of official intervention, drops in the dollar against the yen have been far swifter.
When asked whether he suspected intervention from the BOJ was behind the move in the yen, Societe Generale currency strategist Kenneth Broux said: “It certainly looks like it and short covering.”
“The ‘final warning’ comment has rattled a few accounts for sure,” he added.
Weekly positioning data shows investors hold the largest short position – one based on the assumption the yen will depreciate – since July 2024
Tokyo last intervened when the yen weakened to almost 162 per dollar in July 2024.
Traders remain wary as intervention has loomed ever since the New York Federal Reserve conducted a rate check in January, according to reports, a signal markets took as at least tacit U.S. approval, if not outright support, for a stronger yen.
“There’s been no confirmation from the BOJ but there is a heightened sense of urgency this morning on the willingness to intervene,” said Bank of America senior FX strategist Kamal Sharma.
“I suspect the market was poised for a move once we got over 160 yesterday and now we are back down near 157.” In real terms the yen is trading near record lows.
Since the U.S. and Israel launched their war on Iran, the yen has fallen against the dollar and Prime Minister Sanae Takaichi’s administration has been quick to highlight the damage.
A weak currency further inflates the cost of its imported fuel.
Earlier this week, the Bank of Japan kept rates steady, but three of its nine-member board proposed hiking borrowing costs, signalling policymakers’ concerns over inflationary pressures from the conflict.
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