Japanese Yen surges as intervention risks lurk
Gold surpassed US$5,000 ($A7,283) an ounce early on Monday after a tumultuous week when tensions over Greenland and Iran rattled sentiment. Markets remained on edge following the rout in bonds and a sharp rise in the yen.
The yen rose 0.5 percent to 154.84 per dollar by 0052 GMT after sharp gains on Friday triggered speculation about possible intervention. The Federal Reserve Bank of New York imposed interest rate controls on Friday, raising the possibility of a joint US-Japan intervention to stem the currency’s slide, sources told Reuters.
“The cat-and-mouse game with the yen is likely to be reflected in the new week’s activity, but the one-way market is broken, at least for now,” said Marc Chandler, chief market strategist at Bannockburn Capital Markets in New York.
Japan’s Nikkei index fell 1.6 percent in early trading, while S&P 500 futures fell 0.4 percent and Nasdaq futures fell 0.7 percent as investors awaited the Fed’s policy meeting at the weekend.
US President Donald Trump provided temporary relief to markets last week by reversing tariff threats and downplaying possible strong action against Greenland. However, new sanctions against Iran increased concerns in the market.
Increasing US pressure against Iran is causing oil prices to rise and pushing safe-haven gold to record highs above US$5,000 ($7,283) per ounce. Precious metals, including silver, have been on a wild rise so far this year.
While authorities in Tokyo refused to comment on the sharp fluctuations in the yen, sources told Reuters that the New York Federal Reserve conducted interest rate controls on Friday, leaving traders alert to the possibility of intervention at any time.
Japanese Prime Minister Sanae Takaichi said on Sunday that his government would take necessary steps against speculative market movements.
Pepperstone senior research strategist Michael Brown said interest rate controls are often the last warning before interventions take place, noting that Takaichi’s administration appears to have “a much, much lower tolerance for speculative currency movements than its predecessors.”
“The risk/reward has now shifted heavily in favor of short JPY positions, because no one will want to risk being caught offside by big 5/6 figures if/when the Treasury or their managers actually pull the trigger.”
The sharp decline in the bond market in Japan last week drew attention to Takaichi’s expansionary fiscal policy, which he called early elections to be held on February 8. The bond market has stabilized somewhat since then, but investors remain nervous.
The Yen also strengthened broadly against other currencies on Monday; It has moved away from record lows against the euro and Swiss franc, and off decade lows against the pound.
Charu Chanana, Saxo’s chief investment strategist, said a rate control-style alert could help reset positioning and remind the market that there is a line around 159-160.
“With the dollar starting to look softer, this actually means Japan has a clearer window into yen weakness. Intervention works better when it moves with the broader USD wave rather than fighting it.”
The dollar index, which measures the U.S. currency against six rivals, was near a four-month low of 97.224 after falling 0.8 percent on Friday, its biggest one-day decline since August.
This week, investors’ focus will also be on the Fed. The central bank is expected to keep interest rates steady at the meeting, which is overshadowed by the Trump administration’s criminal investigation into Fed Chairman Jerome Powell, whose term ends in May.
Among commodities, oil prices retreated slightly after rising nearly 3.0 percent on Friday as traders assessed the impact of Trump’s pressure on Iran by imposing more sanctions on ships carrying oil to Iran.
Brent crude futures fell 0.18 per cent to US$65.74 ($A95.76) per barrel, while US West Texas Intermediate crude fell 0.2 per cent to US$60.92 ($A88.74) per barrel.
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