Japanese yen decline raises expectations for intervention

The yen has fallen to critically low levels against the dollar, and expectations of “exchange rate intervention” have increased in the markets. As the Bank of Japan (BOJ) prepares to announce its interest rate decision on Friday, the country’s currency, the yen, has fallen to critically low levels against the dollar, and expectations of “exchange rate intervention” have increased in the markets. The dollar/yen tested above 155.5 for the first time in more than 34 years. According to data from the Depository Trust & Clearing Corporation, demand for contracts to sell the yen against both the dollar and the euro increased on Wednesday. In addition, $300 million worth of purchases were made in 1-month options that foresee a sale of the yen if the dollar/yen reaches 156. While all these developments put pressure on the yen, all eyes are on the statements to come from BOJ officials, who ended the negative interest rate application last month and are expected to remain on hold this month. “The risk of intervention remains high regardless of the level,” said Win Thin, head of global market strategy at Brown Brothers Harriman. “A surprise rate hike would make much more sense than FX intervention,” said Piotr Matys, senior currency analyst at InTouch Capital Markets Ltd. “The most effective way to stabilize a battered currency is to surprise the market with a rate hike,” Matys said, although he viewed that as a very unlikely scenario.