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Dollar hits 34-year high against yen after US inflation data

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The dollar jumped to a new 34-year high against the yen in early trading Thursday in Tokyo, briefly pushing the Japanese currency through what was seen as a key support line and reviving market speculation that authorities of Tokyo could try to intervene.

The dollar strengthened above 153 yen against the greenback for the first time since the mid-1990s, a line that some analysts had previously warned could represent a “line in the sand” and attract direct intervention from Japan.

Shortly after the move, Japan's deputy finance minister for international affairs, Masato Kanda, told reporters that authorities would not rule out any measures to address excessive movements in the exchange rate.

But while he said the recent moves had been “rapid,” Kanda stopped short of declaring the latest move “excessive,” in what two Tokyo-based traders said could be seen as a sign that the risk of intervention was no longer high. had changed significantly.

“I don't have any particular [exchange rate] level in mind, but excessive volatility has a negative impact on the economy,” Kanda said.

The dollar's latest move against the yen came after better-than-expected data on US inflation in March, which exceeded market expectations for the timing of US interest rate cuts and caused a jump in yields. of bonds and in the dollar.

The yen has traded near the 153 yen line in recent weeks, prompting comments from Japanese authorities that analysts have interpreted as the highest level of verbal intervention.

Japan intervened directly in the markets on three occasions in 2022, buying yen to stabilize the Japanese currency, which was weakening to 152 yen per dollar.

Traders in Tokyo said that with markets now betting that a U.S. interest rate cut won't come before at least September, the wide gap in rates between the U.S. and Japan was headed toward persistent downward pressure on the yen.

Japan ended eight years of negative interest rates in March when it raised the overnight interest rate to a range of zero to 0.1 percent, but rates are expected to remain low for some time.

Currency analysts said Tokyo markets would be watching for signs that Japan's Finance Ministry was carrying out a “rate check,” where officials check the price of the yen offered by traders as a precursor to a possible official monetary intervention.

But Benjamin Shatil, a currency analyst at JPMorgan in Tokyo, said Japanese officials would be keen to avoid appearing to be defending a line. “We could see the dollar-yen pair hit new highs before triggering an official response,” he said.

Shatil said shorting the yen to invest in higher-yielding currencies, including the dollar, remained a popular trade.

“Given the tapering of the Federal Reserve cuts this year, there is a widespread perception among macro investors that the intervention will simply serve to slow, not stop, the depreciation of the yen,” Shatil added.

Others questioned the value of Japanese officials' intervention on a day when currency moves were driven by overall dollar strength rather than Japan-specific factors.

On Wednesday, the dollar gained just over 1 percent against a basket of currencies, including the yen, in its best daily performance in more than a year.

“Japanese officials have warned that 'speculative' measures were impacting and threatened to intervene. But the sharp jump between the dollar and the yen suggests that the strength of the dollar will not be able to be fought currently,” said analysts at Action Economics.

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