Japanese Yen Surges to 154 Yen per Dollar… 'Stop-Loss Hunting' Takes Advantage of U.S. Market Closure
Dollar-Yen Exchange Rate Briefly Hits 154.06 Yen in London Trading
Market Plummets as Psychological Support Level of 155 Yen Breaks
Stop-loss orders flood the market amid U.S. Labor Day holiday closure
Speculation about a BOJ rate hike on the 18th is the underlying factor
[Edaily Reporter Bang Sung Hoon ] The value of the Japanese yen soared to its highest level in seven months (the dollar-yen exchange rate fell). Amid growing expectations that the Bank of Japan (BOJ) would raise interest rates, the yen’s psychological support level of 155 yen per dollar collapsed, triggering a flood of buy orders. The yen rose even more sharply than when U.S. and Japanese monetary authorities jointly intervened in the market, rendering the intervention ineffective.
(Photo: AFP) According to Bloomberg News on the 7th (local time), with U.S. financial markets closed that day, the yen’s value on the London foreign exchange market rose 1.4% from the previous trading day at one point during the session, reaching 154.06 yen per dollar. This marks the highest level in seven months, since last February. It even surpassed the high (155.23 yen on August 4) reached after the U.S. and Japan launched a coordinated intervention on July 31. The yen’s value jumped 2.4% last week alone.
As of 7:50 a.m. on the 8th, prior to the opening of the Tokyo foreign exchange market, the dollar-yen exchange rate was trading between 154.23 and 154.24 yen. This is 1.32 yen (0.84%) lower than the previous day’s closing rate (as of 5:00 p.m.).
The trigger for the yen’s sharp rise was the breakdown of the “155 yen” psychological support level. A large volume of stop-loss orders—where traders would buy back yen at a loss below 155 yen—had accumulated in the market, and once this level was breached, those orders were executed all at once. Dealers brokering options trades also had to sell dollars to cut their losses, which further fueled the yen’s strength.
Masahiko Lu, a senior fixed-income strategist at State Street Investment Management, explained, “The fact that the yen fell below 155 yen is significant,” adding, “This is because this level has historically served as a floor following periods of intervention.”
The Nihon Keizai (Nikkei) newspaper reported that overseas speculators deliberately targeted this stop-loss selling. They reportedly took advantage of the sharp decline in trading volume as the New York market was closed for Labor Day. Since Japanese monetary authorities have historically intervened during periods of light trading, such as long holidays, caution regarding further intervention had spread throughout the market. This was triggered by remarks made by Japanese Finance Vice Minister Atsushi Mimura on the 4th, in which he stated, “Our readiness to intervene remains unchanged.”
This coincided with news of easing tensions in the Middle East. As speculation spread that Iran and Oman would reach an agreement within a few days regarding the management of shipping through the Strait of Hormuz, funds that had been held in dollars as a hedge against the crisis were liquidated. The decline in oil prices improved Japan’s terms of trade—since the country imports most of its crude oil—thereby strengthening the yen.
Underlying this trend are expectations of an interest rate hike by the Bank of Japan (BOJ). The market anticipates that a rate hike will be implemented at the Monetary Policy Meeting on the 18th. BOJ Policy Board Member Hajime Takata stated last week that a 0.25 percentage point hike was “not necessarily set in stone,” leaving open the possibility of two consecutive hikes. Speculation that the Government Pension Investment Fund (GPIF)—the world’s largest pension fund—might adjust its asset allocation, along with demand from institutional investors to reallocate funds at the start of the month, also bolstered the yen.
The yen’s value briefly fell below 160 yen per dollar last week before rebounding sharply. This indicates that the market is moving with a high degree of volatility. Motonari Sakai, Senior Manager of Foreign Exchange and Financial Products Trading at Mitsubishi UFJ Trust and Banking, said, “Markets tend to move significantly when New York is closed, so we need to be wary of downward pressure,” adding, “The next downside target for the dollar-yen exchange rate is 154 yen, the low from last February, and if it falls below that, there is no significant support level until the low 152 yen range.”
Van Ru, Global Head of Fixed Income and FX Strategy at Russell Investments, commented, “It feels like this could be the start of a larger trend,” adding, “While the effect of the first intervention fizzled out, this second phase is driven by the market’s own momentum, making it far more significant.”
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