Yen rallies as ‘rate check’ sparks intervention speculation

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Japan’s currency rallied on Friday by the most in almost six months as speculation swirled that authorities could be planning an intervention.

The yen jumped 1.7 per cent against the US dollar to ¥155.7 on Friday, a big rise for a major developed-market currency.

The gains came after the New York Federal Reserve performed a “rate check” on Friday, asking market participants for yen pricing in a move that is frequently seen as a precursor to a market intervention, traders said.

The rate check was made at the request of the US Treasury. It was not immediately clear whether Washington had been in contact with Japanese authorities ahead of the move. The Treasury did not respond to requests for comment on the matter.

The prospect of intervention comes after the yen has come under significant selling pressure in recent months.

Prime Minister Sanae Takaichi — who will be standing in a snap election next month — is pitching a policy that includes fiscal stimulus and tax cuts, factors that have worried investors.

The yen had rushed beyond the ¥159 line against the dollar early on Friday — leaving it around levels that have previously prompted interventions from Japanese authorities — prior to the New York Fed’s rate check.

“The sharpness of the move — which came after the yen earlier threatened to break the ¥160 red line — is of the kind that is often associated with FX intervention though it could simply be a sharp technical unwind,” said analysts at US bank Evercore in a note to clients.

They added: “It is plausible that the US would intervene in current circumstances with the shared goal of preventing excessive weakness in the yen while also hoping to indirectly contribute to stabilising Japan’s bond market.”

Japanese government debt has also been volatile in recent weeks, sending ripples across global capital markets.

The country’s 40-year yield crossed 4 per cent for the first time this week after Takaichi promised a two-year suspension of consumption tax on food — a measure that will cost the government an estimated ¥5tn ($32bn). Shorter-dated bonds have also come under pressure.