FOREX-Yen drifts after intervention whirlwind; Iran optimism dents dollar

The Japanese yen steadied at 157.55 per dollar on Wednesday, rebounding from historic lows after a joint intervention by Tokyo and Washington, while the dollar traded at six-week lows.

​The Japanese yen steadied on Wednesday after its most volatile few ‌days ​in months after historic intervention, while the dollar traded around six-week lows against other currencies as revived hopes of an end to the war in Iran blunted safe-haven demand. The yen was steady at 157.55 per dollar, slightly stronger on the day, having fallen 0.4% on ‌Tuesday. On Monday, it hit as little as 155.2 per dollar, having traded at its weakest in 40 years, around 164 per dollar a week earlier. U.S. Treasury Secretary Scott Bessent on Tuesday said the U.S. would do "whatever it takes" to support Japan's efforts to stabilise the yen, echoing the words of former European Central Bank President Mario Draghi, who in 2012 pledged the same ‌to preserve the euro during the regional debt crisis.

CRITERIA FOR LONGER TERM The dollar hit its lowest against the Japanese currency in three months after joint purchases on Friday by ‌Tokyo and Washington — the first yen-buying intervention for U.S. authorities since 1998 — and fell further on Monday. Since then, it has strengthened against the yen, suggesting investors are sceptical about how effective intervention can be in the longer run.

"The phrase 'sticking plaster' does feel relatively appropriate in many instances. The reality is, I think it is nothing more than a containment exercise, unless you get one of three criteria," CIBC Capital Markets head of G10 FX strategy Jeremy Stretch ⁠said. He said ​broadly, the three criteria would be a more aggressive ⁠approach to rate hikes from the Bank of Japan, markets pricing in a lower chance of rate increases from the Federal Reserve, and a lower oil price. Bessent told public broadcaster NHK that he was sure Bank ⁠of Japan Governor Kazuo Ueda will "do what is best" for the country's economy, heightening market expectations that the BOJ could raise rates at its next policy meeting on September 17 and 18.

BNY said in a research ​note on Wednesday its data showed investors held bullish positions in the yen, but these were far smaller than in the first half of this year. "U.S. support ⁠provides an opening for re-accumulation (of bullish positions), but we believe the market will agree with Bessent that any structural shift in holdings will depend on credible domestic policy changes," BNY senior EMEA macro strategist Geoff Yu said.

OIL RETREAT DENTS DOLLAR The ⁠dollar ​index, which tracks the U.S. currency against six others, was 0.1% lower at 99.71 after hitting a six-week low on Monday. With the oil price back around $80 a barrel and U.S. President Donald Trump saying his administration had "very good discussions" with Iran, investors had less incentive to buy the dollar as a safe haven. Lower oil prices also prompted traders to ⁠attach a lower chance of the Federal Reserve raising interest rates in September, which also acted as a drag on the dollar. That probability was just below 60% on Wednesday, ⁠from closer to 70% at the start of the ⁠week. Kansas City Fed President Jeff Schmid said on Tuesday that some monetary policy tightening was needed to bring "too high" inflation back to the Fed's 2% target.

The euro rose 0.1% to $1.155, while the pound edged up 0.2% to $1.347. In terms of macro events, the U.S. monthly employment ‌report on Friday could help shape ‌expectations for near-term Fed policy. (Additional reporting by Jiaxing Li and Summer Zhen in Hong Kong; Editing ​by Jacqueline Wong, David Holmes and Barbara Lewis)