Yen Traders Prepare for Potential Intervention Ahead of Monday Market Holiday

Yen Traders on High Alert for Intervention on Monday

Market liquidity is expected to drop significantly on Monday due to holidays in major financial centers, including London and New York. This reduction in participants could exacerbate exchange-rate moves, making it crucial for yen traders to closely monitor trading after Tokyo hours.

The yen has been hovering around the 159 level against the dollar, its weakest level since April 30. The Japanese government's intervention in the currency market during the Golden Week period on April 30, where it likely bought as much as ¥10 trillion ($63 billion) before May 6, has traders worried about the possibility of further intervention.

Japan's currency has been one of the worst performers among Group-of-10 peers in the past three months, largely due to rising oil prices from the war in the Middle East and inflation fears. Additionally, concerns over Prime Minister Sanae Takaichi's spending plans and the potential for an extra budget have added to the pressure on the yen.

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The chance of intervention is higher given the thinner liquidity, but only above 159.75, according to Damien Loh, chief investment officer at Ericsenz Capital in Singapore. Japanese Finance Minister Satsuki Katayama has reiterated her willingness to step into the market if needed to prop up the yen, while US Treasury Secretary Scott Bessent has characterized excess foreign-exchange volatility as undesirable.

"It's possible that there could be intervention during the holidays when there's fewer market participants," said Kumiko Ishikawa, a senior analyst at Sony Financial Group. "But the finance ministry will be considering all sorts of factors such as dollar-yen's level, the speed of the yen's weakening and the external environment."

The rate gap between the US and Japan has also been weighing on the currency after the Bank of Japan held policy steady last month. Overnight index swaps show about an 83% chance of a move in June. RBC BlueBay Asset Management has added to long yen positions this week as the currency drifted back toward 160 per dollar, viewing the level as increasingly attractive amid possible intervention and expectations of a rate hike in June.

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Some investors warn that the impact of intervention may be limited unless the BOJ lifts its policy rate. Bessent has expressed confidence in BOJ Governor Kazuo Ueda's ability to guide Japan's monetary policy effectively.