Yen slides past 163, raising intervention alert

SINGAPORE >> The yen was pinned near an almost four-decade low today as rising oil prices and U.S. Treasury yields hoisted the dollar and left traders on edge about possible Japanese intervention.

In New York trade today, the yen hit 163.24 per dollar, its weakest since late 1986, and sat at 163.21 early in the Asia session.

The dollar gained broadly overnight, briefly pushing the euro just below $1.14, and held its ground as U.S. forces began an 11th straight night of strikes on Iran.

“A continuation of the Middle East conflict should support the dollar because of its safe-haven status and typically positive correlation with oil prices,” Commonwealth Bank of Australia currency strategist Samara Hammoud said.

The euro was last at $1.1401, while the Australian dollar clung to the 70-cent level and the New Zealand dollar sat on support just above its 200-day moving average of $0.5825.

Sterling was also testing support, falling through its 200-day moving average to $1.3385 as traders weighed how new U.K. finance minister John Healey plans to fund spending.

Brent crude futures touched a six-week peak of $91.99 a barrel today, while U.S. yields were up along the curve, pushing the 30-year yield to a two-month high of 5.15%.

Whenever the 30-year yield breaches 5%, it tends to ripple through global markets, raising the bar for riskier investments and supporting the dollar. A 20-year Treasury auction will be in focus later today.

Benchmark 10-year yields touched their highest level since May overnight at 4.64% and remained steady around that level in early Asia trade, putting further pressure on the yen.

Low interest rates and recent worries about Japan’s finances have pushed the yen relentlessly lower for years.

Japan engaged in record intervention in April and May after the dollar-yen rate crossed above 160. But the impact has worn off and officials have backed off on intervention threats in favor of ambush tactics designed to keep markets on edge, which could bring them out if the yen moves suddenly — or even steadily — to new lows.

A boost from Japan’s finance minister floating the idea that the country’s government pension fund could shift some foreign investments into domestic markets has also worn off, turning focus back to the risk of official yen buying.

“We think (Japan) may soon intervene again,” HSBC analysts, led by global head of foreign exchange research Paul Mackel, said in an outlook report last week.

However, they noted that intervention is unlikely to have a lasting impact unless the Bank of Japan makes several hawkish rate hikes, the U.S. Federal Reserve returns to a rate-cut bias or market sentiment shifts regarding Japan’s fiscal health.

“Our base case is for dollar/yen to be trapped in a new and higher range, mainly 160-165, capped by periodic intervention but supported by negative real rates in Japan,” they added.