Huge drop in the USD/JPY pair. Yen intervention?

It cannot be denied that in the last days of April, at the beginning of the new week, the most interesting issue is the strongly strengthening yen. Due to the fact that there are no grounds for this, the most likely reason is a currency intervention.

However, the Ministry of Finance of Japan does not comment on this matter, although the lack of prior verbal intervention, i.e. the scale of the movement itself, supports the initiation of artificial support for the yen.

Yen intervention?

It is worth noting that the yen has been weak in recent days and after the latest BoJ decision, it seemed a matter of time until an attempt was made to test the next level at which intervention would be possible. The level of 160, as it was speculated, was reached this morning and after this test, several minutes later we observed an over 2% strengthening of the yen. USD/JPY pair dropped from around 160 to 155. It is worth mentioning that Today we have a holiday in Japan, which makes it quite an interesting time for a potential intervention. On the one hand, the institutions responsible for steering policy in Japan are not working.

On the other hand, the lack of commercial trade in Japan's markets causes carrying out the intervention today was definitely cheaper. Of course, it must be remembered that the entire currency market is much larger and stronger than the power of the Japanese authorities, so there is a chance that the yen will return to decline. On the other hand, the yen is already extremely weak, and the long-term outlook points to the potential for further interest rate increases from the side Bank of Japan. Of course, as long as the Fed remains hawkish and refrains from cutting rates, the yen may have difficulty establishing a consistent upward trend.

Weakness is only a political matter

Japan's Ministry of Finance declined to comment on the intervention. Bloomberg, in turn, indicates that Japanese banks are getting rid of the dollar at this point. The weakness of the yen has become a political issue in Japan at this point, as the currency, the weakest in over 35 years, resulted in high prices of foreign products, not only the more luxurious ones, but also the basic ones such as oil and fuels.

In turn, morning inflation data in Spain show a much smaller increase than expected. Today we also expect inflation data from Germany. This week we will get many macro readings such as ADP and NFP, we will learn the Fed's decision, and at the same time, many important Wall Street companies will publish financial data for the past quarter.

Before 10:00 we were paying PLN 4,0234 for the dollar, PLN 4,3143 for the euro, PLN 5,0413 for the pound and PLN 4,4168 for the franc.

Source: Michał Stajniak CFA, XTB