Bank of Japan data suggests authorities sold as much as $58.97 billion in a fresh yen-buying intervention, pointing to repeated efforts to stem the currency's weakness. The yen briefly rallied before giving back most of its gains after the BOJ kept interest rates steady at 1%, leaving traders on alert for a second round of support.
Japan may have sold as much as $58.97 billion in its latest yen-buying intervention, Bank of Japan data indicated Friday, pointing to repeated efforts to stem the currency's weakness. The BOJ's projection for money market conditions the following day suggests an 8.2 trillion yen net outflow of funds, compared with brokerage forecasts that ranged from a 1.4 trillion yen surplus to a 1.73 trillion yen shortfall. Yen-buying intervention works by the BOJ pulling the currency out of markets, so unusually large shortfalls in funds can point to the scale of any action.
Yen gives back its early gains
However, the rally did not hold. The yen traded up as much as 0.6% at 158.535 per dollar in London morning trading on Friday before quickly surrendering the advance. It was last down 0.3% at 159.905, having weakened to as low as 160.90 against the dollar after the BOJ kept short-term interest rates steady at 1% in a widely expected move.
Thursday's yen-buying and dollar-selling intervention set the currency for its biggest weekly rise since February and a monthly jump of more than 1.7%. The move pulled the yen away from four-decade lows but failed to give it a sustained boost.
BOJ flags inflation risk
Meanwhile, the central bank also addressed its inflation outlook. The BOJ hiked rates to a 31-year high last month. It also warned for the first time that underlying inflation could exceed its target, signalling further rate hikes from as soon as September. Governor Kazuo Ueda said many board members' inflation forecasts are fairly high and see risks skewed to the upside.
Japan's slow pace of rate increases has been blamed for pushing the yen to 40-year lows below 163 per dollar recently. Most analysts polled by Reuters expect the BOJ to raise rates again to 1.25% by year-end.
Traders brace for a second round
Speculators have amassed large bearish bets against the yen, with weekly data from a U.S. regulator showing net short positions worth $11.65 billion, near the highest level in two years. Japan's top foreign exchange diplomat said Friday that Tokyo is also receiving support from the U.S. that goes "beyond psychological support." Nikkei reported U.S. authorities conducted rate checks, though the New York Federal Reserve declined to comment.
In a rare coordinated move, South Korea also conducted dollar-selling intervention Thursday to support the won, a market source told Reuters.
Sources: Investing.com, Investing.com
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