Yen Surges Amid Suspected Japanese Intervention

The yen spiked on Wednesday, likely due to Japanese authorities intervening to support the currency. Currency markets saw significant moves, with the dollar dipping and the pound rising after strong inflation data. The Ministry of Finance did not confirm the intervention, though indicators suggest significant yen purchases last week.

The yen surged sharply on Wednesday, with traders suspecting another intervention by Japanese authorities to support the faltering currency from multi-decade lows. The yen's movement stood out in a busy currency market day, during which the pound rose following hotter-than-expected British inflation data and the dollar dropped across the board, with the dollar index hitting a four-month low.

The dollar fell 1% against the yen, reaching 156.75, extending its sudden decline shortly after the London trading session began, a move attributed to Japan's intervention. The dollar had plummeted to 156.1 yen, compared to a 38-year high of 161.96 yen in early July.

Japan's Ministry of Finance did not respond to requests for comment. However, Kyodo News reported that Japan's top currency diplomat, Masato Kanda, indicated an unlimited ability to intervene against excessive market speculation. Bank of Japan data shows Japan purchased nearly 6 trillion yen through intervention last Thursday and Friday.

Geoff Yu, senior macro strategist at BNY in London, commented, 'Current valuations are still stretched and the yen is still undervalued, so more activism in FX markets from Japan is the way to correct any misalignments. But we have to wait for an official confirmation.'

The yen saw significant gains against other currencies as well. The euro dropped 0.7% to 171.34 yen, and sterling fell 0.62% to 204.2 yen. Meanwhile, the British pound gained 0.5%, hitting a one-year high against the dollar at $1.3032 on data showing higher-than-expected UK inflation. Headline inflation remained at 2% annually in June against a 1.9% forecast, while services inflation was 5.7%.

The pound strengthened to a near two-year high against the euro, which fell 0.18% to 83.85 pence, its lowest since August 2022. The Swiss franc also strengthened, influenced by the yen's volatility. The dollar fell 0.66% against the franc to 0.8877, and the euro dipped 0.4% to 0.9706. The euro, however, gained 0.3% on the dollar, reaching $1.0933.

The dollar index, which tracks the unit against six major peers, dropped 0.46% to 103.75, as signs of slowing U.S. inflation increase investor confidence in upcoming rate cuts. Investors expect a rate cut from the Fed in September and anticipate significant easing by year-end. Despite strong retail sales data, market views remain unchanged.

The New Zealand dollar gained 0.64% to $0.6087, buoyed by high domestically driven inflation in the second quarter. Markets still expect about three rate cuts from the Reserve Bank of New Zealand this year.

(With inputs from agencies.)