Yen jumps sharply as Japan warns it is ready to intervene again

Japan's yen jumped in a sharp move on Friday as the country's top foreign exchange diplomat warned Tokyo was ready to step back into markets, only hours after official buying lifted the fragile currency.

The comments from Atsushi Mimura and the sudden jump in the yen sparked speculation among currency traders of another round of intervention by Japan.

Having held steady overnight, the dollar dropped in the London morning, falling by as much as 0.66% to a session low of 155.60 from 157.12 earlier, triggering talk of further intervention among already nervous currency traders. JPY=

It was not immediately clear what was behind Friday's move, but analysts said after Thursday the market was on edge.

"Liquidity is thin and people are nervous after yesterday so there is a susceptibility to volatility in the dollar/yen," said Jeremy Stretch, head of G10 FX strategy, CIBC Capital Markets.

Tokyo's ramped-up rhetoric comes as the yen stays under pressure from wide U.S.-Japan interest rate gaps and ahead of a holiday stretch officials fear could invite speculative attacks.

"I won't comment on what we'll do ahead. But I will tell you that Japan's Golden Week holidays have just started," Atsushi Mimura told reporters when asked whether Tokyo could intervene in the currency market.

Mimura's remarks followed Japanese Finance Minister Satsuki Katayama's warning on Thursday that "decisive action" was approaching. She also urged reporters to keep their smartphones on hand throughout the holidays, a pointed signal of Tokyo's readiness to intervene and deter speculators from exploiting thin liquidity to push the yen lower.

Hours later, Japan stepped into the market to support the yen, its first official currency intervention in nearly two years, two sources familiar with the matter told Reuters, sending the Japanese currency as much as 3% higher.

Mimura declined to comment on whether Japan intervened in the currency market on Thursday.

When asked whether currency moves remained speculative, Mimura said: "There's no change to my view on markets."

Japan remains in "extremely close contact" with the U.S., Mimura said, adding that both countries agree action may be needed depending on market developments.

"Every time we see a substantial move in the yen there will be questioning about what is driving this given the warnings we have had," said Stretch at CIBC Capital Markets.

After surging to 155.5 per dollar after the intervention on Thursday, the yen JPY= trimmed some gains and stood at 156.99, still above the 160 mark seen as the Japanese authorities' line in the sand for intervention.

GOLDEN WEEK AHEAD

Nervousness was reflected in the options market, where the cost of protection against big swings in the yen over the coming week neared its highest in a month, LSEG data showed.

Before the latest action, Japan last stepped into the currency market in July 2024, buying yen after it hit a 38-year low of 161.96 per dollar.

Weekly data from the U.S. market regulator shows speculators hold the largest bearish position in the yen since July 2024, worth nearly $7.5 billion JPYNETUSD=.

Japanese markets will be closed on Monday through Wednesday for Golden Week, which could cause wild swings in the yen due to thin liquidity, analysts say.

The slow pace of rate hikes by the Bank of Japan has been one of the factors behind a weak yen. Even the BOJ's hawkish signals on Tuesday failed to provide lasting support, as the dollar gained on market bets that mounting inflationary pressures will keep the U.S. Federal Reserve from cutting rates.

"The yen will remain under downward pressure on inflation concerns from high oil prices, slow BOJ rate hikes and the hawkish tone of other central banks," said Rinto Maruyama, FX and rates strategist at SMBC Nikko Securities.

Mimura has also previously flagged the possibility of Japan intervening in crude oil futures on concerns that market volatility was spilling over into yen moves.

"We have conditions in place and are always ready to take action," Mimura told reporters when asked about volatile moves in the crude oil futures market.

-Reporting by Makiko Yamazaki and Leika Kihara; Additional reporting by Dhara Ranasinghe, Alun John and Amanda Cooper in London; Editing by Jacqueline Wong, Shri Navaratnam and Alexander Smith/Reuters