The yen jumped on Thursday on suspicion that Japanese authorities intervened after it hit a fresh 40-year low against the dollar. The dollar fell about 0.8% to around 161.20 yen, with traders now watching an early US jobs report for the next signal.
The Japanese yen rebounded on Thursday amid suspicion that Japanese authorities stepped into the market, after the currency touched a fresh 40-year low of 162.83 to the dollar. The dollar was trading down by about 0.8%, falling to around 161.20 yen.
The move followed reports on Thursday that Japan's Ministry of Finance is changing its tactics, no longer giving any warning before acting so as to squeeze out speculators. The yen had also slid on Wednesday before the turn.
Dollar choppy ahead of an early jobs report
The dollar finished the previous day higher against a basket of currencies, even without any hint of an imminent rate hike, amid some speculation of a July move, while Treasury yields also climbed. That rise came despite mixed US data, as ADP employment rose by less than forecast in June and the ISM manufacturing PMI missed expectations.
Attention now turns to the official jobs report, released a day early because markets are shut on Friday for Independence Day. Payrolls likely increased by 110k in June, easing from the prior 172k, while the unemployment rate probably held steady at 4.3%. Any upside surprise could revive bets on a July hike, which slipped after Fed Chair Kevin Warsh said inflation risks had come down.
Why the yen matters beyond Japan
The currency's direction feeds directly into the yen carry trade, in which an investor borrows yen at low rates, converts to dollars and buys higher-yielding US assets. With carry trades estimated at $10 to $20 trillion in aggregate, a forced unwind can carry global impacts.
That risk is not hypothetical. In August 2024, Japanese currency intervention spurred a rapid strengthening of the yen, which triggered a 10% decline in the S&P 500 within days. For now a weak yen keeps the trade attractive, but Bank of Japan officials increasingly frame the soft currency as a source of domestic inflation.
Sources: Investing.com, Investing.com
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