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USD/JPY faces two-way risk in thin Asian trading duirng the first half of this week. An intervention-style drop would be amplified by the lack of Tokyo interest, while a quiet session leaves the pair free to drift on the wide rate gap between Japan and the US. Yen crosses would be likely to move in step. Yen strength would typically weigh on exporters, while renewed weakness would support them.
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With Tokyo shut until Thursday, the yen enters some of its thinnest trading of the year just as the market tests whether Japan will lean on a holiday again.
Summary:
- The Tokyo Stock Exchange and Osaka Exchange are closed Monday 21 September (Respect for the Aged Day), Tuesday 22 September (Citizens’ Holiday) and Wednesday 23 September (Autumnal Equinox Day).
- Normal trading resumes Thursday 24 September and runs through Friday 25 September. The government bond market is also shut for the three days.
- Yen trading continues offshore through Singapore, Hong Kong, Australia and New Zealand, with thinner liquidity.
- The yen fell as much as 1.3% on Friday to close around 157 per dollar, down more than 2% on the week, after the Bank of Japan raised rates with little guidance on further hikes.
- There is market speculation that authorities could use the thin liquidity to support the yen, with Golden Week’s record intervention of around ¥11.7 trillion the precedent.
Japan’s major markets are closed for the first three days of this week, with the Tokyo Stock Exchange and Osaka Exchange shut Monday for Respect for the Aged Day, Tuesday for a Citizens’ Holiday and Wednesday for Autumnal Equinox Day, according to the Japan Exchange Group calendar. Tuesday’s closure follows the rule that turns a single working day between two national holidays into a holiday. Cash equities and Nikkei futures resume Thursday, September 24, with normal trading on Thursday and Friday. The government bond market is also shut for the three days.
The yen does not stop trading, however. Business continues through Singapore, Hong Kong, Australia and New Zealand, but with Tokyo desks absent, order books and interest tend to thin out and price moves can be larger than the volume behind them would normally justify.
That matters because the yen is coming off a difficult week. It fell as much as 1.3% against the dollar on Friday to close around 157, leaving it down more than 2% on the week, after the Bank of Japan raised interest rates but offered little guidance on the pace of further hikes. The currency had strengthened to around 153 per dollar on September 8, following coordinated yen buying by Japan and the United States in late July, when the pair had approached 164. A retracement portion of that rebound has now been given back.
Against that backdrop, speculation is building that Japanese authorities could take advantage of the thin holiday liquidity to support the yen. There is precedent. During Golden Week in April and May, Japan spent a record of roughly ¥11.7 trillion (around $73 billion) after USD/JPY breached 160, 161,162 163 and nearly 164, and strategists at the time noted that the holiday timing amplified the impact. Official comment on possible intervention is not expected this week, so sentiment is likely to be driven by market chatter and by price action in the Asian session.
A holiday closure is the kind of window in which an operation would carry the most force, and Friday’s slide has put the pair back within reach of levels that have drawn a response before. Still, it is a risk rather than a forecast. The pair remains below the 160 level that preceded the Golden Week action. Earlier operations have quickly, which may give authorities pause about spending at a moment of thin liquidity alone.
A sharp, unexplained yen slump, such as a push toward 160 without a rebound, would strengthen the intervention case, while a quiet holiday drift would weaken it. Tokyo desks return Thursday, when the market will find out how the holiday was priced.
This article was written by Eamonn Sheridan at investinglive.com.
