Gains for stock markets and a warning of the chances of intervention from Japan’s finance minister knocked back the yen on Friday after a week of startling gains.
The yen surged at one point by as much as 2 per cent against the dollar on Thursday, and Minister Taro Aso responded early on Friday by warning rapid currency moves were “undesirable’’, that the yen’s rise were “one-sided” and that Japan would take steps as needed.
That is language that Tokyo has used in the past to flag intervention, and the yen’s run to 17-month highs against the dollar has required investors to believe that it would hold fire at least until after next week’s G20 meetings in Washington.
“Of course there is some fear in the market,” said Manuel Oliveri, a strategist at Credit Agricole in London.
“But one has to bear in mind that there is the G20 agreement not to, and that to work any intervention would need to be large and really that means it would need the support of the Fed and the European Central Bank.”
By 0738 GMT, the yen had lost 0.7 per cent at 108.92 yen per dollar, still up more than 2 per cent on the week and around 10 per cent on the year so far.
The dollar was higher across the board after taking some comfort from Federal Reserve Chair Janet Yellen’s promise on Thursday that the US central bank was on course to tighten rates gradually going forward.
Yellen’s statement last week that the Fed should proceed cautiously in light of looming global risks to the US economy have been at the heart of sharp falls over the past 10 days for the dollar against the euro and yen.
Both of those currencies have been treated as safe havens by investors sharing growing concerns that much of the developed world is falling into a debilitating cycle of deflation that central banks are powerless to stop.
The dollar inched up 0.1 per cent to $1.1380 per euro in early European trade.
“This is really just a bit of Friday respite,” said a dealer with one international bank in London. “Where we go next week seems set to depend on risk appetite again. As long as stocks are falling, the dollar will be a sell on any rallies.”
A Reuters poll of strategists released on Thursday showed the broader dollar rally that began in mid-2014 has nearly run its course and will only gain slightly over the coming year, with respondents saying risks to their forecasts are tilted more to the downside.
“We think a combination of falling US real rates and elevated market volatility are weighing on the dollar against the current account surplus-backed euro and yen,” analysts from BNP Paribas said in a note.
“(But) we remain constructive on the dollar against the Australian and Canadian dollars.”