By Jiaxing Li
HONG KONG, July 31 (Reuters) – The Japanese yen came under renewed pressure on Friday as markets tested Tokyo’s resolve in the wake of a coordinated intervention to prop up the fragile currency ahead of an eagerly anticipated policy decision from the Bank of Japan.
The dollar rose as much as 0.8% to 160.690 in early trades, after diving 2.4% in its biggest single-day drop since January 2023 in the previous session.
Japan conducted yen-buying, dollar-selling market intervention in the New York session overnight, a market source told Reuters, pulling the sagging currency from four-decade lows.
The country’s top foreign exchange diplomat said on Friday Tokyo was receiving support from the United States that “goes beyond psychological support.”
“Coordination is a strong positive for the yen and will definitely make speculators think twice,” said Chris Weston, head of research at Pepperstone. “If you’re holding a leveraged position, 450-500 pip rip to the downside against you, it’s going to hurt.”
Speculators have amassed large bearish bets on the yen, with weekly data from a U.S. regulator showing net short positions on the currency worth $11.65 billion, near the highest in two years.
In a rare coordinated move, South Korea also conducted dollar-selling intervention on Thursday, a market source told Reuters.
The won rose to a nine-month high before giving back some of its gains, with the Asian currency last at 1,434.26 per U.S. dollar in early trading, down more than 0.7%.
BOJ TAKES THE SPOTLIGHT
All eyes are now on the BOJ, which is widely expected to keep short-term interest rates steady at 1%, having just hiked in June, while delivering a hawkish signal as price pressures mount.
The slow pace of rate hikes has been blamed for pushing the yen to a 40-year low, and most analysts polled by Reuters expect the BOJ to raise rates again to 1.25% by year-end.
“I think the market will push it (dollar/yen) back higher again and we’ve already seen signs of it this morning,” said Nick Twidale, chief market strategist at ATFX Global in Sydney.
“But for me it now brings into question, could we see a surprise hike from the BOJ today. I think it’s very unlikely, but given the amount they have spent on intervention, could they look to follow it up with fundamentals.”
The BOJ meeting follows the U.S. Federal Reserve’s decision to leave interest rates unchanged, which bruised the dollar as traders questioned whether the Fed’s new chief was serious about containing inflation.
That has left the dollar on the defensive. The U.S. dollar index , which tracks the currency against six major peers, was a touch higher at 100.12 after plunging 0.8% in the previous session. It was heading for a 1.3% drop for the week and a 1% loss for the month.
The euro stood at $1.1517, down 0.08% so far in Asia, after climbing to a six-week high in previous session. Sterling traded flat at $1.3460.
The Aussie and Kiwi dollar were roughly down 0.1%, last at $0.7030 and $0.5871, respectively.
(Reporting by Jiaxing Li in Hong Kong and Ankur Banerjee in Singapore; Editing by Lincoln Feast and Kate Mayberry)
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