BOJ Intervention Fails to Bolster Yen Amid Elevated Yield Spread
The Bank of Japan's recent intervention in the currency market has been met with skepticism by some analysts, who believe it came too late and was largely ineffective.
According to reports, the central bank polled market participants on exchange-rate levels, a move that often precedes official intervention. However, this latest effort failed to spark a sustained rebound in the yen's value.
The yen had plummeted earlier in the day after traders were disappointed by the Bank of Japan's decision not to provide clearer guidance on future rate hikes. Instead, two members appointed by Prime Minister Kishida Suga cast dissenting votes, while two other board members are set to step down next year with likely dovish successors.
The intervention aimed to squeeze speculative short positions on the yen and accelerate a market reversal in a thinly liquid market. However, analysts believe that even if the Bank of Japan completes its rate hike, the Fed's new tightening cycle will keep the U.S., Japan yield spread at elevated levels, leaving investors with strong incentives to borrow yen and allocate capital elsewhere.
According to data from the U.S. Commodity Futures Trading Commission (CFTC), leveraged funds had cut their short bets on the Japanese yen by half as of the week ending September 8, suggesting that even if authorities were to intervene again, there are fewer short positions left to squeeze.