Historic Yen Weakness, Value Surges in Afternoon... "Possible Authorities' Intervention"

Observation of Sparkle Effect

Amid a record-breaking weak yen phenomenon, the yen-dollar exchange rate surpassed 160 yen for the first time in 34 years on the morning of the 29th, before plunging more than 4 yen again.

Regarding this, local media Kyodo News reported, citing market sources, that "there is a possibility that the Japanese government and the Bank of Japan (BOJ) intervened in the foreign exchange market." However, the dominant view is that this will be a temporary yen appreciation.

An employee is organizing US dollars and Japanese yen at the Counterfeit Response Center of Hana Bank in Jung-gu, Seoul. Photo by Jinhyung Kang aymsdream@

On that day in the Asian foreign exchange market, the yen-dollar exchange rate exceeded the 160 yen level per dollar around 10:30 AM (yen depreciation). This is the first time in 34 years since April 1990. After the BOJ decided to keep the benchmark interest rate unchanged at the monetary policy meeting on the 26th, the yen selling trend accelerated as the high interest rate differential between the US and Japan was expected to continue. The delay in the US Federal Reserve's (Fed) interest rate cut decision is also cited as a factor for yen weakness.

However, in the afternoon, yen buying movements strengthened, causing the yen-dollar exchange rate to plunge. From around 1 PM, it fell more than 4 yen over about an hour, dropping to the low 155 yen range. Although Japanese authorities recently made verbal interventions amid the rapid yen depreciation, they failed to stop the yen's value from falling, and it is analyzed that they actually intervened by buying yen and selling dollars.

However, the market expects that direct intervention by the authorities in the foreign exchange market will have only a 'temporary effect.' For example, when the yen-dollar exchange rate exceeded 150 yen in 2022, Japanese authorities intervened directly in the foreign exchange market three times, and the rate fell to 130 yen by January of the following year, showing a trend of yen appreciation, but they could not stop the subsequent rise.

The yen also showed weakness compared to the euro on that day. The yen-euro exchange rate rose to the 171 yen level, the highest since the euro was introduced in 1999, according to Nikkei.