The US dollar strengthened continuously during the Asian trading session, with the Japanese yen falling to levels seen in early May when Japan's authorities were suspected of intervening, following the reduced expectations for interest rate cuts by the Federal Reserve. Early on Thursday, the US dollar to Japanese yen exchange rate reached 157.67, surpassing the closely watched 157.52 level, which had triggered suspected intervention actions by Japanese authorities on May 1. Although Japan's authorities have not confirmed whether they directly intervened by buying yen at that time, according to related forecasts, Japan may have used approximately 3.5 trillion yen (about 22.5 billion US dollars) in intervention funds on May 1.
Previously, Japan's authorities were also suspected of intervening on April 29, when the US dollar to Japanese yen exchange rate broke through the 160 mark, with the intervention scale possibly reaching 5.5 trillion yen. The combined scale of the two interventions could reach 9 trillion yen (about 60 billion US dollars). The foreign exchange market is highly attentive to the movements of the Bank of Japan. After reaching the Bank of Japan's intervention point early on Thursday, yen short-sellers did not continue to sell off significantly, and the US dollar to Japanese yen exchange rate subsequently fell back to around 157.40.
This trend shows that the market is still testing the bottom line of Japan's authorities, while some funds buying on the dip are betting on whether Japan will intervene again. Since the beginning of the year, the yen has fallen about 10% against the US dollar, becoming the worst-performing currency among the G10 currencies. The depreciation of the yen is mainly driven by carry trades, with investors selling yen to choose currencies with higher yields.
Some market participants warn that as long as carry trades continue, the yen may fall to a 34-year low again. Recent statements by Japanese authorities show their urgent desire to curb excessive depreciation of the yen. G7 finance ministers reaffirmed their commitment to preventing excessive exchange rate volatility after their meeting last Saturday. Previously, Masato Kanda, Japan's Vice Minister of Finance, stated that the Japanese government is ready to deal with excessive volatility of the yen at any time.
Besides possible direct intervention, the Bank of Japan might also further raise interest rates going forward. The interest rate swap market expects the Bank of Japan to raise interest rates by 27 basis points this year, with the earliest increase possibly in July, at one point deemed 90% probable. However, some industry insiders believe that due to the market's anticipation of a rate hike, the hawkish move by the Bank of Japan might not be sufficient to prevent the yen from weakening further.
