Yen Wipes Out Friday’s Gain as Market Focus Returns to Yield Gap

The yen extended losses, unwinding its sharp rebound on Friday, as traders shifted their focus back to Japan’s interest-rate outlook. 

Yen Wipes Out Friday’s Gain as Market Focus Returns to Yield Gap

The currency was down 0.5% at 153.76 per dollar in Asian trading on Monday. That’s after jumping as much as 1.2% in the last session, when surprising softness in US jobs and wage gains last month prompted traders to bring forward interest rate cut bets for the Federal Reserve.

Unlock exclusive access to the latest news on India's general elections, only on the HT App. Download Now! Download Now!

The yen whipsawed in the past week, weakening beyond 160 per dollar for the first time since 1990 in late April before rebounding dramatically due to two rounds of suspected official interventions. Japan’s top currency official Masato Kanda has declined to comment on whether the authorities had intervened.

Dollar-yen is likely to move higher and re-test the 160 level given the “tremendously wide” US-Japan rate differentials, Alvin Tan, head of Asia FX strategy at RBC Capital Markets in Singapore said on Bloomberg TV Monday. “The impact of the interventions will dissipate quite quickly if indeed US interest rates do not continue to drop from here.”

To stem yen losses, the Ministry of Finance has probably bought the currency twice in late April and early May, spending about ¥9 trillion in total, according to Bloomberg calculations. The yen still remains the worst performing major currency so far this year with a loss of more than 8% against the dollar.

Former US Treasury Secretary Lawrence Summers is in the camp that argues intervention won’t have a long-lasting impact. He said such operations are ineffective at shifting exchange rates, even at the large magnitude that Japan has been thought to have deployed recently. 

US Treasury Secretary Janet Yellen over the weekend declined to comment on whether Japanese authorities intervened to support the currency. However, she said the US would expect interventions to be rare and consultations to take place.

“When looking at previous periods of Japan’s intervention, it is more successful when the US participates,” Paul Mackel, global head of FX research at HSBC Holdings Ltd., wrote in a note to clients. However, Yellen’s comments don’t sound like a ringing endorsement, he said.

With assistance from Ruth Carson.

This article was generated from an automated news agency feed without modifications to text.

Discover the pivotal moments that shaped India's electoral journey on the Eras section of our exclusive Elections product. Access all content absolutely free on the HT App. Download now!
Stay informed on Business News along with Gold Rates Today, India News and other related updates on Hindustan Times Website and APPs