Japan's Yen Squeezed by Coordinated Intervention

Japan's central bank intervened in the currency market on Friday, buying yen and selling dollars to support the value of its currency. The move came ahead of a decision by the Bank of Japan (BOJ) to keep interest rates at 1%, which has made it attractive for investors to borrow yen and buy higher-yielding assets elsewhere.

The coordinated action with neighboring South Korea helped pull the yen off four-decade lows, but the intervention was short-lived. The dollar is now back near 160.760 yen, testing how far Tokyo and its neighbors will go to slow the yen's fall.

Chris Weston of Pepperstone noted that a $11.65 billion yen short position can turn intervention into a fast squeeze, forcing leveraged traders to close positions quickly. This could lead to a 450-500 pip rip in the currency market, causing higher volatility and increased costs for companies and investors that need to hedge against currency fluctuations.