Yen at Strongest in 17 Months Probing Limit of Japan's Tolerance

  • More jawboning would be `meaningless,' JPMorgan's Sasaki says
  • BOJ's next policy meeting is scheduled for April 27-28

Foreign-exchange traders are challenging Japanese policy makers’ tolerance for a stronger yen as the currency climbed to a level unseen for 17 months.

The yen briefly pushed through 110 per dollar on Tuesday to the highest since Bank of Japan Governor Haruhiko Kuroda boosted monetary easing in October 2014, and a level that some strategists see as heightening the risk of intervention. Kuroda has said he’ll keep monitoring the currency and reiterated the potential for cutting interest rates further below zero. The next scheduled policy meeting is April 27-28.

“Dollar-yen’s price action suggests traders don’t see much threat of anything to stop the yen rally,” said Sean Callow, a senior foreign-exchange strategist at Westpac Banking Corp. in Sydney. “Bold easing on April 28 is the most plausible circuit breaker for the dollar-yen rout, but it’s not clear we will see that.”

The yen was little changed at 110.35 per dollar as of 6:49 a.m. in London after surging to 109.95 on Tuesday, the strongest level since Oct. 31, 2014. Japan’s currency rose 0.1 percent to 125.43 per euro.

The yen at 110 per dollar is “a key psychological level” that will spark nervousness about intervention to weaken it because of the damage a stronger currency inflicts on Japanese corporate profits, according to Daragh Maher, head of U.S. currency strategy at HSBC Holdings Plc. in New York.

Japan’s government said in late February it didn’t sell yen from Jan. 28 to Feb. 25, meaning it hadn’t intervened in currency markets since 2011.

Avoid Devaluation

Other analysts discounted the threat of intervention and Prime Minister Shinzo Abe appeared to support that view in an interview with The Wall Street Journal, published Tuesday, in which he said “we must definitely avoid competitive devaluation.”

Japanese officials won’t engage in actual intervention, and continued jawboning would be “meaningless,” said Tohru Sasaki, head of Japan markets research in Tokyo at JPMorgan Chase & Co. and a former BOJ official. “If you only shoot blanks, it just makes a sound,” he said. “At first everyone is surprised, but once they get used to it, it’s just noise.”

Sasaki sees the yen strengthening to 103 per dollar at year-end, after accurately predicting it would appreciate at the start of 2016.

Japan’s currency has surged 9 percent against the dollar this year, the best performer among its 16 major peers, as signs China is slowing reverberated through the global economy and boosted demand for safer assets. A weaker yen has been a key ingredient of Kuroda’s efforts to boost inflation to 2 percent through monetary stimulus. The BOJ’s benchmark consumer-price index has been stuck near zero for a year.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE