Washington bought the Japanese Yen again without meaning to
USD/JPY closed Wednesday 0.92% lower just above 158.00, the largest single-session decline since the early-August intervention, and Tokyo did not lift a finger for it.
On Wednesday, the US Treasury unexpectedly purchased Japanese Yen without Japan's involvement, causing the currency to decline by 0.92% to around 158.00. This was the largest single-session decline since an early August intervention. The pair ended the day on its 200-day Exponential Moving Average (EMA). To support its liquidity, the Treasury announced plans to double the size of its buyback operations for longer-dated bonds, increasing each operation from 2 billion Dollars to at least 4 billion Dollars between September 9 and November 4.
The thirty-year bond printed above 5.33% on August 18, its highest since June 2007, but quickly lost some value. The spread between US and Japanese interest rates significantly influences this currency pair, which is why the intervention moved the spot rate without altering the spread. The Bank of Japan kept its policy rate at 1.00% in July, but markets now anticipate an increase in September at an 80% probability, up from 65% in early August.
The domestic economy's weak performance, with slower-than-expected GDP growth and a trade deficit, adds pressure on the Yen. However, external factors, such as the US strengthening its currency, lower the odds of domestic tightening that would further strengthen the Yen.
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