Japan's markets are shut for three straight days this week, and traders are watching whether Tokyo uses the thin holiday liquidity to support the yen. The currency slid to around 157 per dollar on Friday after the Bank of Japan's rate decision, down more than 2% on the week, reviving comparisons with the record intervention Japan made during Golden Week.
The yen enters one of its thinnest trading stretches of the year just as the market tests whether Japan will lean on a holiday again to defend the currency. USD/JPY faces two-way risk this week: an intervention-style drop would be amplified by the lack of Tokyo interest, while a quiet session leaves the pair free to drift on the wide rate gap between Japan and the United States.
Silver Week closes Tokyo desks
The Tokyo Stock Exchange and Osaka Exchange are closed Monday, September 21, Tuesday, September 22 and Wednesday, September 23, for Respect for the Aged Day, a Citizens' Holiday and Autumnal Equinox Day respectively, according to the Japan Exchange Group calendar. Tuesday's closure follows the rule that turns a single working day between two national holidays into a holiday itself. Cash equities and Nikkei futures resume Thursday, September 24, with normal trading through Friday, and the government bond market stays shut for the same three days.
The yen does not stop trading, however. Business continues through Singapore, Hong Kong, Australia and New Zealand, but with Tokyo desks absent, order books thin out and price moves can run larger than the volume behind them would normally justify.
A rough week for the yen
That thin liquidity arrives after a difficult stretch for the currency. The yen fell as much as 1.3% against the dollar on Friday to close around 157, leaving it down more than 2% on the week, after the Bank of Japan raised interest rates but offered little guidance on the pace of further hikes.
The currency had strengthened to around 153 per dollar on September 8, following coordinated yen buying by Japan and the United States in late July when the pair had approached 164. A portion of that rebound has now been given back.
Against that backdrop, speculation is building that Japanese authorities could use the thin holiday liquidity to support the yen. There is precedent: during Golden Week in April and May, Japan spent a record of roughly ¥11.7 trillion, around $73 billion, after USD/JPY breached 160, 161, 162, 163 and nearly 164. Strategists at the time noted the holiday timing amplified the impact. Official comment on possible intervention is not expected this week, so sentiment is likely to be driven by market chatter and Asian-session price action.
What would tip the balance
A holiday closure is the kind of window in which an operation would carry the most force, and Friday's slide has put the pair back within reach of levels that have drawn a response before. Still, USD/JPY remains below the 160 level that preceded the Golden Week action, so any move now would be a risk rather than a forecast.
A sharp, unexplained yen slump toward 160 without a rebound would strengthen the intervention case, while a quiet holiday drift would weaken it. Tokyo desks return Thursday, when the market will find out how the holiday was priced.
Source: Investinglive
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