The Yen Moved Six Figures in an Hour and Tokyo Still Has Not Said Why

On Thursday the dollar was near 164 yen, a level not seen in forty years. Inside about an hour it was at 157.96. That is close to six full yen, roughly three percent, moving through five major price levels with almost nothing bidding on the way down. Neither the Ministry of Finance nor the Bank of Japan has confirmed it intervened. Tokyo has not said so.

They do not have to for a while. Official intervention figures covering the 30th of July are not published until the 28th of August, and the quarterly detail does not arrive until November. In the meantime the evidence is circumstantial and fairly convincing: a reported rate check by US Federal Reserve authorities, a turnover spike during the move, and the sheer speed of it. Nobody else moves a G10 currency six yen in an hour on a Thursday.

The positioning explains the violence. Speculators were sitting on 152,125 net short yen contracts as of the 21st of July, which is a crowded trade by any measure, and the pair had spent weeks grinding higher without a pullback. When the bid disappeared there was nothing underneath. By the end of the session it had recovered to around 160.4, which tells you this was positioning relief rather than a change in anything fundamental.

Japan has done this before and it worked less well each time. There were interventions in April and May once the rate crossed 160, and the effect faded faster on each attempt. HSBC's line is that Japan may soon intervene again, but that a lasting move requires either the Bank of Japan hiking or the Fed turning toward cuts. Neither happened this week.

The Bank of Japan met on Friday and held its policy rate at 1 percent, while warning that core inflation is running above its 2 percent target. That is the trap in one sentence. The rate differential is what is selling the yen, closing it means tightening into an economy that has spent decades not wanting to, and every month of delay makes the currency defence more expensive and less credible.

So Japan spent an unknown number of billions on Thursday to buy back four yen and it gave three of them up before the week was out. The Fed held on Wednesday with three officials voting to hike. Until that differential narrows, intervention is a speed limit rather than a direction, and everyone in the market knows it.