Markets Wary of Intervention as Yen Struggles at 155 Level

Reuters

12:00 JST, April 25, 2024

SINGAPORE (Reuters) – The yen was pinned on the weaker side of 155 per dollar on Thursday as the Bank of Japan (BOJ) kicks off its two-day rate-setting meeting, leaving traders nervous as to whether Tokyo will intervene while policy deliberations are still underway.

Having traded in a tight range over the past few days, a buoyant dollar finally broke above the 155 yen level for the first time since 1990 in the previous session, and was last steady at 155.34 yen in early Asia trade.

Intense speculation of intervention from Japanese authorities to shore up the yen had hampered the dollar’s ascent towards the psychologically key level, seen by some market participants as a line in the sand that would prompt Tokyo to take action.

The breach of the 155 yen level comes as the BOJ meets to discuss monetary policy, though expectations are for the central bank to keep its short-term interest rate target unchanged following last month’s landmark exit from negative rates.

“We expect the BOJ meeting to deliver a marginally hawkish hold outcome,” said Carl Ang, fixed income research analyst at MFS Investment Management.

“As for policy signaling, April seems a little early to pivot away from the BOJ’s March communication that accommodative financial conditions will continue for the time being.

Continued expectations of gradual policy tightening and a low terminal policy rate make it difficult for the yen to appreciate significantly, even if at historically depressed levels.”

BOJ Governor Kazuo Ueda said this week the central bank will raise interest rates again if trend inflation accelerates toward its 2% target as expected.

In the broader market, the dollar was on the front foot, recouping some of its losses after a slight tumble earlier in the week following upbeat business activity data in the euro zone and the UK, which had in turn sent the euro and sterling higher.

The euro was last 0.04% higher at $1.0702, but edged slightly away from an over one-week high hit on Wednesday, while sterling was off 0.01% at $1.2463.

The dollar steadied at 105.79 against a basket of currencies, pulling away from a nearly two-week low hit in the previous session.

Trading in Asia was thinned with Australia out for a holiday.

The Aussie tacked on 0.04% to $0.6500, buoyed by receding bets of rate cuts from the Reserve Bank of Australia (RBA) this year after the country’s consumer price inflation slowed less than expected in the first quarter.

“Inflation is moderating but it has some way to go before the RBA can be confident it will return to the 2–3% target range on the desired timetable,” said Justin Smirk, senior economist at Westpac.

“As such, we expect the RBA to remain on hold in May and have pushed back the date of our first rate cut to November, from September previously.”

The New Zealand dollar gained 0.08% to $0.5940.