On Friday, the U.S. dollar plunged against the yen, recording its worst daily loss against the Japanese yen in over two months as investors and strategists speculated that the Japanese government may be looking to stop the depreciation of their damaged currency.
On Friday, the yen climbed as high as 144.5 to the dollar before losing ground and closing up around 1.4% at 148.195, its highest daily gain since August 10.
Chief market strategist at Corpay in Toronto, Karl Schamotta, speculated that it might be an intervention.
As shorts are squeezed, there are a lot of dollars selling and the yen is moving practically vertically, he claimed.
A source cited by the Nikkei newspaper early on Saturday said the Bank of Japan and the Japanese government intervened in the market for foreign exchange by buying yen and selling dollars.
The Ministry of Finance of Japan declined to respond.
Mazen Issa, the senior FX analyst at TD Securities, based in New York, said it is quite obvious that the Ministry of Finance is moving in to sell the dollar-yen.
He claimed that they were steadfastly defending their lax policy.
The timing of their intervention occurred at a very illiquid time, essentially as London was about to head back home for the weekend, and it seems to be constructed to inflict as much as possible pain on, they prefer to use the word, speculators, Issa said.
Many people had been staring at 150 as a fundamental stage where they would see some sort of intervention, but they let it run through to 152.
The Bank of Japan governor said the central bank will closely monitor the impact of currency changes earlier on Friday, while the Japanese finance minister said authorities were handling currency speculators “strictly.”
The yen was on course to end a nine-week run of weekly deficits against the dollar after Friday’s advances.
The dollar index, which gauges the strength of the dollar relative to a basket of currencies, fell 0.7% to 112.17 during the session from a three-week peak of 113.95.
A report that some Fed officials have shown more concern with significant interest rate increases to combat inflation even as they prepare for another significant rate hike in November put pressure on the dollar.
The Wall Street Journal tacked on that the Fed is on track to raise interest rates by 0.75 percentage points at its meeting in November, despite signs that some policymakers want to immediately scale down the pace of rises.
The source revealed Fed officials will likely discuss at that time whether and how to announce intentions to approve a lesser hike in December.
The Federal Reserve’s aggressive approach and the solid demand for safe haven assets despite ongoing uncertainty about the prospects for the global economy plagued by inflation have both contributed to the dollar’s impressive gains this year.
The dollar index is still close to a two-decade high despite its decline in response to Fed reports.
Bipan Rai, North American director of FX strategy at CIBC Capital Markets, claimed it’s pretty hard to bet against the fact that the Fed will need to remain to be quite assertive in its approach moving forward.
In the end, Rai argued, this suggests that the dollar will continue to rise.
Although the future for the pound remained cloudy as Britain’s ruling Conservative party prepares to choose the nation’s third prime minister in 2 months after Liz Truss resigned on Thursday, the weaker dollar helped strengthen sterling 0.2% to $1.1261.
The day prior, the currency increased by as much as 1% after Truss declared her departure.