Rapid appreciation of yen could trigger BoJ intervention

There was a rapid appreciation of the Japanese yen as global risk appetite fell, putting pressure on US and European equities, emerging market currencies and “peripheral” Eurozone sovereign debt.

As Asian and European markets digested a relatively dovish set of minutes from the Federal Reserve’s March meeting, released on Wednesday, the dollar tumbled to a fresh 17-month low against the Japanese currency of Y107.71, before pulling back to Y108.37 — still down 1.3 per cent on the day. The euro was down 1.5 per cent at Y123.25.

Despite the yen’s appreciation,Japanese prime minister Shinzo Abe stated this week that Japan will refrain from arbitrary intervention and seeks to avoid competitive currency devaluations. These comments helped buoy the yen even more as they acted as a green light for yen bulls to continue pushing the yen higher in the near-term.

Nevertheless, the relentless march higher for the Japanese currency has put the markets on alert for any hints that the authorities had stepped in to stem its advance.

Verbal intervention from the Ministry of Finance has quickly progressed this week, with officials moving from ‘monitoring closely’ to citing yen moves as being ‘one-sided’. If the dollar/yen pair sharply drops into the Y100-105 area, this would likely increase the chance of a market intervention by the Bank of Japan.

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