The yen jumped against the dollar today, with traders citing yen-buying intervention by Japanese authorities as a trigger for the bounce in a currency languishing at levels last seen over three decades ago.

The dollar tumbled to a low of 154.40 yen from as high as 160.245 earlier in the day. Banking sources said Japanese banks were seen selling dollars for yen. The dollar was trading at 156.27 yen at 2127 GMT (11:27 a.m. Hawaii time), down more than 1% from late Friday.

The Wall Street Journal today said Japanese financial authorities had intervened in the market, citing people familiar with the matter.

Traders had been on edge for weeks for any signs of action from Tokyo to prop up a currency that has lost some 11% against the dollar so far this year, trading at 34-year lows despite the central bank’s historic exit from negative interest rates last month. Trading in Asia today was thinner than normal due to Japan’s Golden Week holiday.

Today’s swings came after the Bank of Japan (BOJ) last week stuck to its guidance on buying government bonds, dashing the hopes of some traders that it could soon taper purchases partly to slow the yen’s decline.

“Last night’s volatility comes after the central bank opted not to adjust its asset purchase volumes in last week’s decision, keeping rate differentials at spectacularly wide levels and leaving policymakers with few options to arrest the currency’s decline,” said Karl Schamotta, chief market strategist at Corpay.

He added that the break above 160 clearly amounted to the sort of “disorderly” move that the Ministry of Finance has previously proven willing to tackle. “Algo-driven selling might have continued amid holiday-thinned trading conditions.”

Currency traders have bet Japanese rates will remain low for some time in contrast to relatively high U.S. interest rates.

Japanese government bonds offer yields far below U.S. Treasuries and other foreign sovereigns, which draw a constant flow of Japanese money abroad, keeping the yen under pressure.

“Over time with this interest differential between the BoJ and the Fed and the obvious reluctance of the BoJ to do anything about that … it’s tough to build up any momentum for the Japanese yen going the other way to strengthen,” said Joseph Trevisani, senior analyst at FX Street in New York.

Japan’s top currency diplomat Masato Kanda declined to comment when asked if authorities had intervened, but said the current developments in the currency market were “speculative, rapid and abnormal” and could not be overlooked.

Japan’s Ministry of Finance (MOF) was not immediately available for comment, with markets in the country closed for a holiday today.

“Today’s move, if it represents intervention by the authorities, is unlikely to be a one-and-done move,” said Nicholas Chia, Asia macro strategist at Standard Chartered Bank in Singapore.

“We can likely expect more follow through from MOF if the dollar/yen pair travels to 160 again. In a sense, the 160-level represents the pain threshold, or new line in the sand for the authorities.”

A weaker yen is a boon for Japanese exporters, but a headache for policymakers as it increases import costs, adds to inflationary pressures and squeezes households.

BOJ Governor Kazuo Ueda told a press conference after a meeting last week that monetary policy does not directly target currency rates, although exchange-rate volatility could have a significant economic impact.

LIMITED OPTIONS

The BOJ is not mandated to manage the currency, but a weak yen complicates its objective of achieving sustainable inflation. It cannot raise rates quickly either, for fear of destabilizing Japan’s heavily indebted government and economy.

The suspected intervention happened days ahead of the Federal Reserve’s policy review on May 1. Expectations for Fed rates cuts have been pushed back all year as U.S. inflation remained elevated. Policymakers, including Fed Chair Jerome Powell, have emphasized rate changes will be dependent on data.

That could mean interventions might help put a floor under the yen only if the central bank policy also shifts.

“A combination of BOJ demonstrating urgency to normalize policy and MOF conducting FX intervention may perhaps be more effective than the MOF doing a solo,” said Christopher Wong, currency strategist at OCBC in Singapore.

Japan intervened in the currency market three times in 2022, selling the dollar to buy yen, first in September and again in October as the yen slid towards 152 to the dollar, a 32-year low at the time. Tokyo is estimated to have spent around $60 billion defending the currency at that time.

The United States, Japan and South Korea agreed earlier this month to “consult closely” on currency markets in a rare warning and Tokyo has stepped up its rhetoric against excessive yen moves.

The Federal Reserve Bank of New York declined to comment today on the action in the currency market, as did the European Central Bank.

The yen has also hit multi-year lows against the euro, the Australian dollar and the Chinese yuan.

Some market participants expected the yen’s weakness would likely persist for the time being.

“Intervention usually reverses the price action for a few days/weeks, buying officials some time,” analysts at TD Securities wrote. “Still, it can’t offset global macro forces. We need lower US rates or a hawkish BoJ to meaningfully alter (the yen’s) fate.”