Officials in Tokyo issued stark warnings to the markets (specifically a polite heads up to FX traders from selling the currency) regarding this imminent move meant to prop up the Yen against the USD as well as take action in other markets including the energy/oil market (where there is also speculative trading in crude oil futures).
The Yen has fallen since the start of the Iran war because of Japan’s vulnerability to imported energy inflation and oil prices. The weakened currency risks faster inflation by making imports including soaring oil, more expensive. Taken together with decades of wage stagnation, the impact on the economy would be devastating.
Japanese Finance Minister Katayama Satsuki announced that the timing to take “decisive action” in the market was nearing while currency diplomat Mimura Atsushi added that “extremely speculative” moves in the currency market were increasing.
Part of this move was to reduce Yen speculation which has been growing over the past two years via the increased short selling of Yen positions against the Euro, Swiss Franc, British Pound and Australian Dollar (speculators were hedging that neither rate hikes nor the threat of intervention would come to the aid of the Yen).
The Bank of Japan (BoJ) has been hesitant from hiking interest rates (they are running negative interest rates). Earlier in the week, the BoJ kept rates steady similar to the U.S. Federal Reserve. Three of the BoJ’s nine member board proposed hiking borrowing costs, highlighting concerns over inflationary pressures from the war in the Middle East.
