US Treasury chief’s intervention remarks spur weak yen bets

THE YEN weakened as US calls for caution on intervention added to expectations that the currency will face continued pressure due to a wide yield gap between the US and Japan.

Some in the market are eyeing a slide back to 160 per dollar after Treasury Secretary Janet Yellen repeated that the US expects “interventions to be rare and consultation to take place.” The yen touched 154.65 a dollar in Tokyo on Tuesday, its low for this week as traders in Japan returned from the holidays.

Japan’s top currency official Masato Kanda declined to comment on Ms. Yellen’s remarks, but said it’s desirable for currency markets to move in line with fundamentals. “If the market is functioning properly, of course there’s no need for the government to intervene,” but if moves are disorderly, “there are times when the government needs to take appropriate action.”

When Japan stepped into the market for the first time in more than a decade in September 2022 to support the yen, that helped spark a double-digit strengthening in the currency against the dollar through mid-January last year. This time around, despite two suspected interventions last week, analysts at firms including RBC Capital Markets and Bank of America Corp. expect the yen to slide back toward 160 per dollar as the yield gap and trade deficits put pressure on the currency to weaken.

“After the 2022 interventions, the yen strengthened smoothly, but it might be more difficult this time,” said Marito Ueda, head of the market research department at SBI Liquidity Market. “Back then there was speculation that US interest rate hikes are ending, and the monetary policy outlook wasn’t unclear like now,” he said, adding that another test of the yen breaking 160 per dollar is possible.

Alvin Tan, head of Asia FX strategy at RBC Capital Markets in Singapore, agrees that the yen may head for 160 due to the yield gap, and “the impact of the interventions will dissipate quite quickly” if US interest rates don’t drop, he said on Bloomberg TV on Monday.

Bank of America Corp. expects the Federal Reserve to cut interest rates in December. “Considering that there likely won’t be any signs of a rate cut until September or so, pressure on the yen to weaken will continue for over a quarter,” said Shusuke Yamada, head of Japan currency and rates strategy at BofA Securities Japan Co. He also expects the dollar to touch 160 yen again this year.

Japan’s reliance on imports for its energy needs is another potential negative for the yen if crude oil prices rise, because that may widen the nation’s trade shortfall. Japan’s seasonally adjusted trade balance has been in deficit for almost three straight years. The yen has in the past gained as a safe haven currency during various disasters and crises, but that hasn’t been the case this year as military tensions rise in the Middle East and the resulting climb in energy prices pressures the currency. — Bloomberg News