Japan and South Korea bought their own currencies and sold dollars in a rare coordinated intervention on Thursday, giving the yen its biggest boost in almost two years and lifting the won to its highest level in nine months. The yen handed back some of that gain on Friday as the Bank of Japan held interest rates steady but flagged rising inflation risk, while the won eased separately on the day.
Yen jumps in rare coordinated move
Japan and South Korea bought their own currencies and sold dollars in a rare coordinated intervention on Thursday, market sources told Reuters. The action handed the yen its biggest boost in almost two years. Meanwhile, the Korean won firmed 2% to its highest level in nine months.
A market source said Japan carried out yen-buying, dollar-selling intervention during New York trading hours on Thursday, while a separate source said South Korea's foreign-exchange authorities sold dollars alongside Japan. The Nikkei newspaper reported that U.S. authorities conducted rate checks during the session, raising the possibility Washington took part, though Reuters could not confirm the checks and the New York Federal Reserve declined to comment.
Asked about coordinated action with the United States, Japan's top currency diplomat Atsushi Mimura said: "We are receiving support from the United States that goes beyond psychological support".
BOJ holds rates but flags inflation risk
The yen last traded at 160.41 per dollar, 0.5% softer on the day, after strengthening to as much as 157.8 in the previous session. The Bank of Japan kept interest rates steady at 1%, a 31-year high, on Friday and warned for the first time that underlying inflation could exceed its target, signalling a rate hike could follow. Board member Hajime Takata was the sole dissenter, calling for a rate hike to 1.25% to respond to inflationary risks from external demand shocks.
Prime Minister Sanae Takaichi's advocacy for low rates and higher government spending has raised market sensitivity to inflation risks and put some pressure on the yen in recent months. Analysts worry that interventions are unlikely to help the yen unless the central bank follows through with rate hikes, especially with speculators amassing a large bearish bet on the yen now worth $11.65 billion.
Won rebounds after hitting a 17-year low
The won hit a 17-year low of 1,561.50 last month. It was last nearly 1% weaker at 1,437.62 per dollar on Friday. The currency has gained nearly 8% this month as firms repatriate dollars back into South Korea. SK Hynix raised $26.5 billion in a U.S. offering earlier this month, with part of the proceeds converted from its American depositary receipts into won, a source familiar with the matter said.
KB Kookmin Bank analyst Lee Min-hyuk said the interests of Korea and Japan aligned, since the won and yen are so tightly coupled that a joint intervention could double the impact. Japan has intervened in coordination with the U.S. or other G7 partners five times since 1985, and eight times on its own, according to an analysis by currency strategist Brent Donnelly at Spectra Markets, and most of the joint interventions have coincided with a turn in the dollar/yen pair's direction.
Source: Investing.com
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