Despite the Bank of Japan (BOJ) raising its benchmark interest rate to 1.25% last week, the yen fell to around 158 yen per dollar, prompting the central bank to initiate a 'rate check' in preparation for potential market intervention. This warning comes ahead of Japan's five-day holiday from September 19 to 23, as the BOJ aims to curb the yen's decline amid reduced trading volumes. Following the rate check, the yen-dollar exchange rate dropped by more than 1 yen within an hour.
The Yomiuri Shimbun reported on September 21 that the BOJ conducted a rate check, inquiring about the exchange rate levels from financial institutions in the New York forex market on September 18. After this news broke, the yen-dollar rate, which had reached 158 yen, fell to the mid-156 yen range in a short time.
A rate check is a procedure where forex authorities ask financial institutions about the yen-dollar exchange rate and trading conditions. It is often seen as a strong signal that the authorities are preparing to intervene in the market.
Earlier, the BOJ decided to raise the benchmark interest rate by 0.25 percentage points to 1.25% during its monetary policy meeting on September 18. However, market analysts noted that the rate hike had already been priced in, and the BOJ did not provide clear signals regarding the pace of future rate increases. The opposition from two policy board members advocating for aggressive monetary easing also fueled speculation that further rate hikes would be slow. Consequently, selling pressure on the yen increased, leading to the yen-dollar rate rising to around 158 yen in the New York market on September 18.
In response, the Nikkei reported that the BOJ conducted a rate check with multiple financial institutions. Following this, a wave of stop-loss yen-buying and dollar-selling orders emerged, causing the yen-dollar rate to drop by over 1 yen within an hour. A hedge fund representative in London told the Nikkei, "The rate check was unexpectedly conducted at a level still far from the psychological barrier of 160 yen per dollar, making it quite effective." As of the morning of September 21, the yen-dollar rate was fluctuating in the mid-156 yen range in the Asian forex market.
This rate check appears to be aimed at preventing further yen selling during the holiday period. Trading volumes in Japan typically decrease during holidays, leading to reduced market liquidity and potentially widening exchange rate fluctuations, which could accelerate the yen's decline. A representative from a Japanese bank in New York commented to the Nikkei, "They likely wanted to send a message to the market that they are wary of a sharp yen depreciation ahead of the holiday."
The Japanese government and the BOJ have intervened in the forex market to buy yen and sell dollars twice this year, including an intervention that involved approximately 11 trillion yen during the holiday period from late April to early May. A rate check was also conducted prior to that intervention. There is a precedent for Japan intervening in the forex market during holiday periods in 2024, leading to speculation that this rate check could lead to actual intervention.
However, some analysts argue that a rate check alone cannot reverse the yen's downward trend. On September 18, long-term U.S. bond yields rose by 0.07 percentage points to reach the 5.0% range. Mark Chandler, chief market strategist at Bannockburn Global Forex, explained to the Nikkei, "The yen is more sensitive to U.S. interest rates than to Japanese rates, and the rise in U.S. rates has led to yen selling and dollar buying." It is not surprising that the yen weakened despite the BOJ's rate hike.
The Yomiuri reported that the ongoing high U.S. interest rates, coupled with the uncertainty surrounding the timing of the BOJ's next rate hike, are contributing to the pressure on the yen as the interest rate gap between the U.S. and Japan remains wide. A fund manager from a British asset management firm told the Yomiuri, "To be honest, the rate check has little effect," adding that market participants are aware that forex market interventions or U.S. support cannot continue indefinitely, prompting them to sell the yen.
Upcoming summits this week are also expected to influence exchange rates. U.S. President Donald Trump is scheduled to meet with Japanese Prime Minister Sanae Takai on September 22 in New York, followed by a meeting with Chinese President Xi Jinping in Washington on September 24. The Nikkei noted that the market is paying close attention to any comments from U.S. officials regarding Japan's financial and forex policies, as U.S. Treasury Secretary Scott Vessenet has previously called for measures to correct the yen's weakness.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.