The yen headed towards a 15-year high against the dollar on Tuesday as traders looked to test Japanese authorities’ resolve on intervention.
The Bank of Japan’s took steps to ease the currency yesterday but this failed to frighten-off investors from betting on it rising further.
Japan may be forced to sell its currency in the markets for the first time in more than six years with the market likely to push up the low-yielding yen and mounting US economic worries are keeping investors away from risk assets such as high-yielding currencies.
“Will they intervene today? No”, said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp. “But markets will become more nervous if the yen approaches 80 yen (to the dollar)”.
“If a raft of U.S. economic data due this week pushes the yen higher, Japan may indeed intervene,” she added.
Given the opinion that neither the USA nor Europe would be keen to increase the value of their own currencies due to weakness in their economies, traders argued any Japanese intervention is likely to be a unilateral action.
Traders said they anticipated Japanese authorities to buy the dollar against the yen to curb it’s strength if the dollar slides between three to four yen in a single day.
Japanese Finance Minister Yoshihiko Noda repeated on Tuesday that the government would take decisive action on currencies when necessary, usually seen as code for intervention.
