Yen traders brace for holiday intervention risk around Bank of Japan
Japan spent a record US$96.4 billion over the past month to support the yen
As the Bank of Japan prepares for its upcoming policy meeting, yen traders are bracing for the possibility of a government intervention to support the currency. Over the past month, Japan spent an unprecedented $96.4 billion to bolster the yen, with a three-day holiday following the decision providing authorities with an opportunity to act in a market with reduced liquidity.
The yen experienced a significant boost, rising as much as 0.5% to 157.99 on September 3, as traders began pricing in a rate hike of over 25 basis points at the next BOJ meeting. The currency also soared by up to 1.2% during New York trading hours on Wednesday, reflecting the heightened market uncertainty ahead of the BOJ's decision on September 18.
Historically, authorities have waited until long Japanese holidays to intervene in the currency market, as seen in April when intervention occurred for the first time since 2024.
Experts warn that the upcoming Silver Week holidays, which begin shortly after the BOJ's policy meeting, could further increase uncertainty around the yen due to thinner trading liquidity. Samara Hammoud, a strategist at Commonwealth Bank of Australia, notes that the holiday period may add a layer of complexity to the currency's trajectory. Additionally, the risk of another intervention rises if the yen reaches pre-intervention highs in the dollar-yen exchange rate, particularly around or after the BOJ meeting.
The yen has been under pressure due to rising oil prices and a significant gap in interest rates between Japan and the US. Despite the substantial government spending to support the currency, intervention appears to be on the table if necessary. Japanese Finance Minister Satsuki Katayama and Treasury Secretary Scott Bessent have expressed readiness to enter the market again if the situation warrants it.
Speculative positioning has turned against the yen, with hedge funds rebuilding short positions after initially reducing bearish bets following the intervention. The BOJ's meeting is further complicated by Treasury Secretary Scott Bessent's increasing public pressure on Japan to raise interest rates. Any deviation from Bessent's calls to raise rates could not only surprise traders but also result in a sharp decline in the yen's value.
The market will also be closely watching the Federal Reserve's policy meeting, which takes place just days before the BOJ's, as Fed Chairman Kevin Warsh warned that inflation remains stubbornly high, and policymakers must demonstrate confidence to avoid further action.
Written by urgent.news from The Business Times - Companies & Markets's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
