Dollar Weakens, Yen Surges Sharply — Market Suspects Japanese Government Intervention

The U.S. dollar declined on Thursday (30th) as traders expressed skepticism toward Federal Reserve (Fed) Chair Kevin Warsh's emphasis on inflation control. Meanwhile, the Japanese yen rose sharply, marking its largest single-day gain since 2022. Analysts suggest this move appears consistent with official intervention by the Japanese government in the foreign exchange market.

In late New York trading, the dollar index (DXY), which tracks the greenback against six major currencies, fell 1% to 99.89 — its worst daily performance since April 21.

At the time of reporting, it had not been confirmed whether Japanese authorities had entered the market. However, the yen’s sharp movement, combined with bank reports of significantly higher-than-normal foreign exchange trading volume, suggests possible official intervention.

The dollar-yen pair briefly dropped 3% to 158.34 yen, falling below the near-164 yen level seen earlier in the week — a 40-year high.

The Bank of Japan (BoJ) is set to announce its latest interest rate decision on Friday. On Wednesday, the U.S. Federal Reserve held rates steady, but the dollar was hit as traders began questioning whether the Fed’s new chair would truly take aggressive action to curb inflation.

Daisaku Ueno, FX strategist at Mitsubishi UFJ Morgan Stanley Securities, said, "It’s hard to imagine any factor other than foreign exchange intervention causing the yen to strengthen by 5 yen in such a short time."

"If this was indeed an intervention, many market participants had expected it to occur after the FOMC and BoJ meetings, so the authorities may have intentionally taken the market by surprise."

Foreign exchange trading volume also surged. In a report to institutional clients, Citi’s sales and trading division noted that between 9:30 a.m. and 9:40 a.m. Eastern Time, its electronic platform estimated around $8.1 billion in USD/JPY sell orders across major forex markets.

Citi stated, "Intervention appears to be a reasonable and plausible explanation."

The yen also rose more than 2% against the euro and the British pound, and nearly 2% against the Australian dollar.

Bond Market Remains Unconvinced by Warsh’s Stance

Investors continued to digest the Fed’s Wednesday decision to hold rates steady, with market focus shifting to Chair Warsh’s post-meeting press conference.

While the Fed’s decision to keep rates unchanged broadly met market expectations, rising oil price volatility has led to rapidly shifting inflation dynamics, pushing market expectations for rate hikes above recent historical levels.

Warsh said during the press conference that the Federal Open Market Committee (FOMC) had undergone a "good family debate," with "active and thorough discussions" centered on four key issues: persistent inflation, recent economic shocks and the resulting price pressures, and monetary policy tools.

He added that the dissenting votes from three regional Fed bank presidents "did not fully reflect the nature of the entire discussion," and that the weaker June inflation data had "not had a significant impact" on this rate decision.

Thierry Wizman, Macquarie’s FX and interest rate strategist, said, "We take away a few observations from the press conference. One is that Warsh is deliberately delaying raising Fed policy rates, substituting words for action, and attempting to mask or deflect from his fundamentally dovish stance."

Following the Fed’s decision and Warsh’s comments, U.S. Treasury yields diverged on Wednesday: long-term yields rose, while shorter-term yields — more sensitive to rate policy — declined.

This trend continued on Thursday. The 10-year U.S. Treasury yield rose over 4 basis points to 4.666%, while the 2-year yield dipped slightly to 4.234%.

As of approximately 6:00 a.m. Taiwan time on Friday (31st), exchange rates were:

- Dollar index: 99.9676 (-0.0142%) - EUR/USD: 1.1529 (+0.0087%) - GBP/USD: 1.3467 (+0.0223%) - AUD/USD: 0.7028 (-0.0142%) - USD/CAD: 1.4005 (-0.0357%) - USD/JPY: 159.5200 (-0.0063%)