The U.S. dollar dropped to its lowest level against the yen since October 2022 after the Japanese currency rose above the 150-per-dollar level.
On Tuesday, the dollar fell to as low as 147.30 yen after reaching a one-year high of 150.165 earlier in the U.S. trading session. Later in Tokyo trading, on early Wednesday local time, the pair traded around 149 yen.
The euro and sterling also weakened against the yen in Tokyo trading, falling to two-month lows against the Japanese currency. The euro was down to 154.39, after previously dropping 0.7 percent to 155.99 yen. Meanwhile, sterling was down 0.8 percent to 179.96 yen.
Leading market participants have raised concerns that Japanese monetary officials might have intervened to prevent the yen from weakening further.
Japanese Finance Minister Shinichi Suzuki said Japan is closely monitoring the currency market and is ready to act. However, any intervention decision will be based on volatility, not specific yen levels.
Kanda Masato, Vice Minister of Finance for International Affairs, cautioned against market moves. He also said the government would continue to take appropriate measures to address excessive volatility if necessary.
With the recent fluctuation in the dollar against the yen, the Japanese finance ministry official in charge of foreign exchange policy declined to confirm or deny whether Japan had intervened in currency markets. The New York Federal Reserve also did not comment.
“It has all the hallmarks of intervention in all honesty,” said Michael Brown, market analyst at Trader X.
Colin Asher, senior economist at Mizuho, also predicted that Japanese financial authorities had likely intervened with the market despite the lack of official confirmation because the economic backdrop was “not fully convincing.” He pointed out that the dollar/yen exchange run-up this year is slower than in the previous year.
"It could just be people expecting intervention and then reacting to what they believed to be intervention."
Colin Asher, senior economist at Mizuho
Factors affecting fluctuation
Other analysts offer arguments as to why interventions by Japanese authorities are unlikely in the recent case.
“The dollar-yen came off a lot; people think it’s intervention. I don’t think so,” he said. “Japan intervened three times last year, and none of it was during the U.S. time zone.”
According to Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets, the rise in yields on U.S. Treasuries and Japanese government bonds contributed to the break above the 150 level.
“People who had bought USD versus the JPY had levels at this which they would sell out/unwind their positions,” Stretch said. “The recent violent price encouraged those sell orders to be triggered amplifying the immediate correction.”
Robust U.S. manufacturing data on Monday and repeated statements from Fed officials emphasizing the need for further monetary tightening had bolstered the dollar. According to Fed Vice Chair for Supervision Michael Barr, the central bank plans to maintain elevated interest rates for longer.
Recent data also showed that the U.S. manufacturing index rose from 47.6 in August to 49.0 last month, the highest since November 2022. This extended period below 50 is the longest since the 2007-2009 Great Recession.
In addition, the stopgap agreement that averted the U.S. government shutdown last weekend pushed benchmark Treasury yields to a 16-year high of 4.706 percent on Tuesday.
NHK reported that the yen had weakened due to expectations that the Fed would keep raising interest rates. The widening spread between U.S. and Japanese bond yields made the dollar more attractive to investors, who sold the yen to buy the dollar.
Meanwhile, traders argue that Tuesday's sudden change in the yen’s value was likely caused by the expiration of currency options at the 150 level. JPMorgan analysts in Tokyo had warned earlier that this event could create volatility.