TOKYO- The yen struggled to hold its line against the dollar on Tuesday after making sharp gains the previous day sparked by suspected intervention by Japanese authorities.
The currency inched down 0.30 percent to 156.79 per dollar but was well off its 34-year low of 160.245 hit on Monday when traders say yen-buying intervention by Tokyo drove a eye-catching rebound of nearly six yen. It briefly popped above 157 earlier in Tuesday’s session.
Japanese authorities haven’t confirmed that they had stepped into the currency market in support of the yen, but markets remain on heightened intervention alert ahead of the Federal Reserve’s monetary policy review this week.
Official figures that would reveal whether intervention did in fact occur won’t be available until late May.
While some market players had zeroed in on 160 yen per dollar as the possible trigger for intervention, analysts said Japanese authorities may not be targeting particular levels.
“Obviously, the still wide policy rate gulf between the Fed and BOJ could continue to keep USD/JPY buoyant. For that reason, we believe Japanese officials desire more flexibility in terms of what levels to intervene at,” said Wei Liang Chang, a currency and credit strategist at DBS.
Despite the yen’s biggest one-day gain this year on the dollar, the Japanese currency still sits lower than it was before the Bank of Japan’s (BOJ) policy announcement last week. It has also suffered its largest monthly decline since January.
The BOJ’s go-slow approach on interest rate increases, following its landmark decision to ditch negative rates in March, has traders betting that Japanese bond yields will remain low for an extended period. In contrast, US rates are still relatively high and provide enough latitude for yen bears.
The Fed begins its two-day monetary policy meeting on Tuesday, where it’s expected to hold rates at 5.25 percent -5.5 percent , with US inflation proving to be sticky.
