Japanese Yen Surges as Authorities "Check" The Waters
- Written by: Gary Howes
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A sudden spike in the yen has all the hallmarks of looming intervention.
The Japanese yen surged by an outsized 200 pips on Friday morning trade, with initial chatter suggesting it might be the authorities preparing to intervene in the market.
The dollar-yen exchange rate dropped 159.20 to 157.40 at 7:43 GMT before the move was pared and USD/JPY recovered to 158.22 in the following minutes.
The pound to yen rate dropped from 214.80 to 212.60 and then recovered to 213.50 during the same window.
Yen buying bears the hallmarks of a "rate check", a deliberate warning signal that the authorities may be preparing to intervene in the currency market, without actually buying or selling yen yet.
A rate check occurs when Japan’s Ministry of Finance, via the Bank of Japan’s dealing room, contacts banks to ask for current exchange rates and market conditions, typically in USD/JPY.
In the past, such checks were followed by direct intervention.
The signalling comes in the wake of the Bank of Japan's latest policy meeting, where rates were left on hold, although economic forecasts were upgraded, signalling the potential for further rate increases.
However, there's not nearly enough coming out of Japanese fiscal and monetary policy to help the yen recover, and that's why authorities feel they have to intervene in the market.
The "rate check" will caution speculators from chasing the yen lower ahead of a more decisive move.