Yen Recovers After Plunge Past 160 Mark in 34 Years

The Japanese yen had a massive movement in the forex markets, initially plummeting below 160 against the US dollar—a level not seen since 1990. It then climbed sharply. The currency's rebound fueled speculation that Japanese authorities may intervene.

Early on Monday, the value of the yen fell as high as 1.2% to 160.17 per dollar. But it quickly turned around and increased by more than 2%. Because this volatility happened over a public holiday in Japan, trading circumstances were less favorable, which could have heightened the swings of the currency.

Experts in the market speculate that the unexpected recovery might be a sign of covert measures taken by the Japanese government to keep the yen stable. “The yen becomes a sharp toy to play with because of the market's extreme volatility and lack of liquidity,” said National Australia Bank analyst Rodrigo Catril, emphasizing the elevated possibility of intervention.

Further stoking concern was Masato Kanda, Japan's senior currency official, who declined to comment when asked about possible market action. Market players, such as IG Australia's Tony Sycamore, a market analyst, saw “hallmarks of an actual BOJ intervention,” adding that the timing of the action over a public holiday may enhance its effects.

The U.S. Federal Reserve's next policy meeting, which might signal that higher interest rates would be maintained to fight persistent inflation, is another source of anxiety. A move like that may strengthen the dollar while increasing pressure on the yen.

Malayan Banking Bhd's Fiona Lim, a market strategist, advised against placing excessive bets against the yen in the absence of any indications of intervention. “Momentum is there for the dollar-yen to move decisively above the 160, and markets are testing Japans tolerance for a sharp yen decline,” Lim said.

This financial drama started just after the Bank of Japan made hints about keeping lending conditions loose while also issuing a warning that excessive yen depreciation would not be allowed. These comments followed a discussion between Japan's finance minister and U.S. Treasury Secretary Janet Yellen earlier this month, which was seen as laying the groundwork for future action.

Even with these possible steps, some observers think Japan could be reluctant to become too involved. T. Rowe Price assistant portfolio manager Vincent Chung says that “the pace of depreciation is less than in 2022, therefore the intervention response could be less intense.”

Furthermore, he pointed out that market participants had already factored in the potential for intervention after the BoJ's meeting in May.

All eyes are on Japan's next measures as the yen's depreciation accelerates. Both traders and experts are keeping a watch on the situation, anticipating Japan to take more moves to preserve its currency in the face of a challenging global financial climate.