What’s going on here?
The Japanese yen just had its biggest one-day jump since late 2022, with the dollar dropping by up to 2.5% after weak US consumer inflation data.
What does this mean?
Market analysts are buzzing, but they’re not giving credit to Japanese authorities for this yen surge. Instead, they’re pointing fingers at a soft US consumer inflation reading that triggered dollar selling. The Bank of Japan had previously intervened in 2022 to support the yen, marking its first move since 1998. But this time, the surge seems more about market positions unraveling. Rate differentials are closing in as a US rate cut might come in September. With yen short positions at their highest in nearly three years, the potential for further upward movement is significant.
Why should I care?
For markets: The yen makes waves in forex waters.
Market players are reacting to US CPI data and adjusting their positions, leading to volatility. Bannockburn Global Forex suggests this is normal market behavior rather than intervention. While the intra-day range was the largest since May’s intervention, it was mostly due to short covering amidst speculation of US rate cuts.
The bigger picture: Currency markets react to economic signals.
The broader narrative is about cleaning up extended positions rather than direct intervention. UBS remarked that this was a ‘classic carry unwind’ due to the market’s long dollar/yen stance. Analysts from Standard Chartered and Societe Generale echo this sentiment, attributing the yen’s bullish spike to market mechanisms responding to softer US CPI data and expectations of lower US rates.
