FOREX-Japan's yen surges against dollar on suspected intervention

Japan's currency surged as much as 5 yen against the dollar on Monday, with traders citing heavy yen-buying intervention by Japanese banks for the first time in 18 months after the currency hit fresh 34-year lows earlier in the day. The dramatic move begins what could be a busy week for currency traders with a Federal Reserve meeting concluding on Wednesday, U.S. payrolls data on Friday, and European inflation data throughout the week, beginning with German and Spain on Monday.

The dollar fell as far as 154.4 yen in several sudden moves in Asia trade and again in the European morning that knocked it from an intraday high of 160.245, its highest since 1990. Japan's top currency diplomat Masato Kanda declined to comment when asked if authorities had intervened, though traders said they had.

The dollar was at 156.25 yen by 11.40 GMT, down 1.3%. Trading in Asia was thinner than normal due to Japan's Golden Week holiday. "It looks like intervention but it looks like less intervention than in the two episodes in 2022 because the market is super thin today, in Japan time especially," said James Malcolm, head of FX strategy at UBS.

"It is quite likely that they will continue to intervene," he said, adding that in recent decades Japanese authorities had tended to step up the amount of intervention in subsequent moves, and vary the times of day in which they intervened. Markets had been wary that Japan might intervene to support the yen after the currency fell more than 10% against the dollar this year.

The Commodity Futures Trading Commission's weekly commitments of traders report showed that non-commercial traders, a category that includes speculative trades and hedge funds, had increased their yen short positions to 179,919 contracts in the week ended April 23, the largest since 2007. The yen had moved nearly 3.5 yen between 158.445 and 154.97 on Friday as traders vented their disappointment after the Bank of Japan kept policy settings unchanged and offered few clues on reducing its Japanese government bond (JGB) purchases - a move that might have put a floor under the currency.

FED POLICY Japan's suspected intervention comes days ahead of the Federal Reserve's May 1 policy review, with investors already anticipating a delay in Fed rate cuts after a batch of sticky U.S. inflation data.

The Fed is seen holding its benchmark interest rate steady at 5.25%-to-5.5% at the April 30-May 1 meeting. Investors are now only confident about a single cut this year, most likely in November, according to the CME's FedWatch tool. U.S. non-farm payrolls data on Friday will give further clues on the U.S. rate path later in the year.

Expectations of delayed Fed cuts have caused the dollar to gain against most currencies in recent weeks, with other major central banks such as the European Central Bank and Bank of England set to cut more substantially this year. However, the pound and euro have managed to rebound a touch from five-month lows hit in mid April. The euro was last at $1.0718, up 0.24% on the day, while the pound was up 0.28% at $1.25280.

European flash inflation data this week will give more information for the ECB to consider. Spain's European Union-harmonised inflation rate stood at 3.4% in the 12 months through April, up from 3.3%. Data from Germany is due later in the day, though provincial data also showed a small rise in some states. (Editing by Lincoln Feast, Jacqueline Wong, Kim Coghill and Christina Fincher)

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