Yen's Surge to Highest Since BOJ's 2014 Bazooka Unnerves Traders

The yen pared its advance toward the highest level since October 2014 amid speculation the Bank of Japan may intervene to arrest gains that threaten to undermine almost three years of monetary stimulus.

Japan’s currency is headed for its biggest weekly advance against the dollar in more than a month, after the Federal Reserve pared back expectations for interest-rate increases this year. The yen reached 110.67 Thursday, the strongest level since Oct. 31, 2014 -- the day the BOJ boosted stimulus -- before retreating against the greenback. The sudden moves fueled speculation the monetary authority was checking Exchange rates with banks, which some traders see as a prelude to possible intervention.

“In the near term, the Ministry of Finance – responsible for currency policy in Japan – will be increasingly concerned about the strength of the yen,” said Mansoor Mohi-uddin, Singapore-based senior markets strategist at Royal Bank of Scotland Group Plc. “Any further sharp declines in the dollar into a lower 105-to-110 range now will substantially increase the risk of the authorities intervening to counter the rise of the yen.”

The yen was 0.1 percent stronger at 111.24 per dollar at 1:08 p.m. in Tokyo, after surging as much as 0.5 percent to 110.82 Friday. The Japanese currency has appreciated 2.4 percent this week, heading for its biggest gain since the period ended Feb. 12.

‘Verbal Intervention’

The BOJ’s Jan. 29 surprise decision to adopt negative interest rates has failed to rein in the currency’s rally from about 121 per dollar on that day. The central bank is set to ease monetary policy further when it next meets on April 28, Mohi-uddin said.

Japanese authorities will probably favor “verbal intervention” even though its effectiveness has waned, said Yuji Kameoka, chief currency strategist at Daiwa Securities Co. in Tokyo. The Group of 20 reaffirmed in Shanghai last month that they will refrain from competitive devaluations, and agreed to consult closely on currencies.

“Japanese authorities are thought to be keeping an eye on the 110 yen-per-dollar level,” Kameoka said. “There’s a very high hurdle to actual intervention because of the agreement reached at the G-20 meeting.”

--With assistance from Daisuke Sakai To contact the reporters on this story: Netty Ismail in Singapore at nismail3@bloomberg.net, Kevin Buckland in Tokyo at kbuckland1@bloomberg.net. To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net, Tomoko Yamazaki, Jonathan Annells

By: Netty Ismail and Kevin Buckland

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