Japanese Yen

Japanese Yen Slams Shorts Amid Likely Intervention

By:Thomas Westwater

Is a yentervention inevitable?

  • Japanese Yen futures surged this morning.
  • Traders suspect intervention by the Japanese government.
  • Yen shorts are likely going to take profits and wait.

Yen trades higher after falling to key level vs. the dollar

The markets are always full of surprises and this morning was no exception. The Japanese yen (/6JZ3) surged after the USD/JPY exchange rate reached a significant milestone of 150. Traders believe this is a result of a strategic move by the Bank of Japan, or BoJ, under the guidance of the Ministry of Finance, or MoF.

Currency interventions, colloquially known as "yentervention," are rather uncommon but not unheard of. Central banks, such as the Bank of Japan, often resort to these interventions to stabilize their currencies, especially during periods of volatility or when the exchange rate reaches certain critical levels. In this case, the USD/JPY exchange rate hitting 150 seems to have been the trigger point, something traders have been watching for.

Before this morning, many expected Japanese officials to remain hands-off because the rate of the yen’s descent was more orderly than the last time a yentervention took place. However, underlying dollar strength sparked by hawkish Federal Reserve commentary over the last week likely influenced policymakers to take decisive action to stem further yen declines.

Where is the yen going after this yentervention?

While traders were split on whether the MoF would intervene, this move serves as a clear warning to yen shorts and shows that Japan is serious about stabilizing the currency. And now that the trigger has been pulled, we could see further intervention over the coming days.

Last year, the Bank of Japan sold over $40 billion to prop up the currency over the course of two days. However, that was enough to shift short-term sentiment; In October 2022, /6J futures saw several weeks of strong buying following the BoJ’s actions.

That said, traders may see this as an opportunity to play /6J to the upside, even though the fundamental backdrop remains murky for JPY. Currency traders remain bullish on the dollar as the Federal Reserve signals policy rates will stay higher for longer.

Meanwhile, the BoJ hasn’t unanchored from its ultra-loose monetary policy setting, although they have signaled they see an exit path. The next major risk for /6J traders is Friday’s U.S. non-farm payrolls report (NFP), which could supercharge Fed rate hike bets and put JPY back near 150 against the dollar.

6j chart

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater 

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