The yen rallied overnight and into the trading day in Tokyo on Thursday, with the currency breaking ¥158 to the dollar for the first time in about three weeks. Bonds recovered as well, with the Japanese 10-year government bond back below 3% and off three-decade highs. Bond prices move inversely to yields.
The dramatic market moves came after a series of meetings between finance and banking leaders from the United States and Japan, and after senior officials made comments supportive of the yen. Clear signs of intervention were not seen on Thursday, with some traders saying that the price action might be too weak to indicate that the yen was being propped up and might have been the result of a rate check. If financial or monetary authorities ask for pricing on yen trades — a rate check — investors sometimes view that as a signal for impending intervention.
Treasury Secretary Scott Bessent met with Bank of Japan Gov. Kazuo Ueda on Sunday and “expressed strong support for Japan’s decisive market and monetary steps to address the substantial undervaluation of the yen,” according to a statement from the Treasury Department. Bessent and Ueda were attending the Group of 20 finance chiefs and central bankers meeting in North Carolina on Monday and Tuesday.
As of Thursday morning, investors were pricing in a 98% chance of a rate increase by the BOJ when it holds a policy meeting on Sept. 17 and 18. During a news conference on Tuesday, Bessent said that Japan had achieved some success with Abenomics — an easy-money policy introduced by former Prime Minister Shinzo Abe — but that the country should now “stop the reflation.” Finance Minister Satsuki Katayama said when Abenomics was implemented, Japan was facing deflation and interest rates were so low. By early afternoon on Thursday, the yen was trading at ¥157.7 to the dollar, compared with about ¥160.3 a day earlier.
In late July, Japan and the United States intervened to support the yen, with Japan alone spending about $100 billion in the operation. The efforts took yen from about ¥163.9 to the dollar to around ¥155, but much of the gain was erased in just a month. At least one bank said in recent days that the currency is on its way to ¥164 to the dollar barring comments or action strong enough to stop the slide.
Japan’s 10-year government bond was trading at about 2.97% on Thursday, down from about 3.02% a day earlier.
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