News analysis
Yen Jumps on Suspected Intervention, Reversing Dollar Gains as Fed Pricing Cools
The sharp move, potentially another round of intervention, left only AUD and CAD with gains into the close while traders trimmed September hike expectations.
Key points
- The yen jumped sharply on suspected fresh intervention, hitting the dollar broadly before the move faded, leaving only AUD and CAD with gains.
- Federal Reserve September hike pricing eased from 18bp to 15bp after ADP payrolls printed 38k and the oil rally stalled; September 4 payrolls and September 11 CPI are the next key tests.
- The Bank of Japan meets September 18 nearly fully priced for a 25bp hike, after board hawk Hajime Takata floated a possible 50bp or back-to-back hikes.
On September 2, a sharp yen rally seen as possible fresh intervention knocked the dollar across the board, with only currencies backed by supportive domestic stories holding gains into the close.
The yen move was described by one FX strategy note as potentially another round of intervention. The move had a knock-on negative impact on the dollar across the board, but towards the end of the session only currencies backed by positive domestic stories, AUD and CAD, had hung onto gains, with the move fading elsewhere. ADP payrolls came in at 38k, leaving few marks.
Interest-rate pricing responded only modestly. Market conviction on a September Federal Reserve hike decreased slightly, with pricing declining from 18bp to 15bp, though the note attributed that likely to the oil rally stalling rather than the yen move. The ISM services report was expected to flatten at 54.1, and the bar to drive the Fed away from a September hike was seen as fairly high, especially for second-tier data.
The yen had fundamental support earlier in the session from a Bank of Japan policy board hawk, Hajime Takata, who indicated that the BoJ could possibly hike 50bp in September or deliver back-to-back hikes. USD/JPY was already lower in early Europe on those comments. The note suspects that after a September hike, the BoJ will prefer to wait until early next year before tightening again.
The dollar's August decline, 0.4%, was its second consecutive monthly drop. July's decline was driven by joint yen-buying intervention by Japan and the US, while the August catalyst was a US Treasury bond buyback announcement, though Jackson Hole comments by Fed Chair Warsh lifted rate-hike expectations.
The central bank calendar now takes over. The FOMC meeting is the key September event, with the probability of a Fed hike above 60%; the September 4 nonfarm payrolls report and September 11 CPI report will shape that decision. The Bank of Japan meets September 18 and is nearly fully priced for a 25bp hike, while the ECB is expected to deliver a 25bp hike on September 10.
The suspected intervention remains unconfirmed, and the dollar's broad decline did not fully hold outside AUD and CAD. The main risk flagged is that higher back-end yields could prompt more Treasury interventionism and a revamp of the debasement trade.
Market reaction
EWJ rose 1.94% at the Sep 3 close; ^KS11 rose 1.69% at the Sep 4 close.
Sources
- 1ING FX DailyFinancialJuice ·
- 2ING: The JPYFinancialJuice ·
- 3MUFG: The Month AheadFinancialJuice ·
PREVICT links to original reports and writes its own synthesis; publisher article bodies are not republished.
