By Rae Wee and Dhara Ranasinghe
SINGAPORE - The yen surged on Wednesday, with suspicions of Japanese authorities intervening to boost the currency from multi-decade lows. The dollar fell 1.2% against the yen at 156.48, extending its sudden decline during the London trading session.
Traders initially thought the move was due to unwinding carry trades, but the scale of the fall raised concerns of another intervention from Tokyo after last week's actions.
Geoff Yu, senior macro strategist at BNY Mellon, believes the yen is undervalued and expects more activism from Japan in the FX markets to correct the misalignments.
The yen also gained against other currencies, with the euro down 0.8% at 171.15 yen and sterling falling 0.76% to 203.75 yen.
Japan's top currency diplomat mentioned responding to speculators causing excessive moves, with no limits on intervention frequency. Data suggested Japan spent 2.14 trillion yen last week in currency market intervention.
Rate-Cut Bets and UK Inflation
The British pound hit a one-year high after UK inflation data exceeded expectations. Headline inflation stayed at 2% annually in June, while services inflation reached 5.7%, impacting rate cut bets by the Bank of England in August.
The dollar slid to a four-month low against a basket of currencies, with the euro peaking at $1.0945. Despite solid US retail sales data, a Fed rate cut in September remains fully priced in.
The New Zealand dollar rose 0.61% to $0.6087, driven by high domestic inflation in the second quarter. Markets still anticipate three rate cuts from the Reserve Bank of New Zealand this year.
Analysis:
The yen's sharp rise due to Japanese intervention can impact global currency markets. Traders should watch for further actions from Tokyo, which could lead to increased volatility. UK inflation data affecting rate cut bets and the Fed's stance on interest rates are crucial for forex traders. Additionally, New Zealand's inflation and expected rate cuts could influence investment decisions. Stay informed and adapt your strategy based on these market movements.