Did the Japanese Ministry of Finance intervene? The yen soared nearly 3% after the US CPI data was released

Data shows that a few minutes after the release of the US CPI data, the USD/JPY exchange rate suddenly soared to 157.44, with the largest increase of nearly 3%, marking the largest single-day gain since the end of 2022. While the market speculates that the surge in the Japanese yen is related to the US CPI data, this has also prompted the Japanese Ministry of Finance to intervene in the market to support the yen.

The Japanese Ministry of Finance previously intervened in the market on April 29 and May 1, buying 9.8 trillion yen to stop losses. Analysts believe that Thursday's trend is reminiscent of the interventions earlier this year. According to sources quoted by Asahi TV, officials intervened in the foreign exchange market. Some forex brokers stated that the trading volume within an hour after the inflation data was released was similar to the intervention action on May 1, with related traders requesting anonymity.

Takafumi Onodera, from Mitsubishi UFJ Trust Bank, stated, "We have seen significant fluctuations in the yen, and the timing of this seems like an intervention after the weak CPI data."

Subsequently, Kanda Masato, the head of the Foreign Exchange Bureau at the Japanese Ministry of Finance, responded that he could not comment on whether this fluctuation was due to intervention. He stated that if intervention was indeed carried out, the government would disclose it at the end of the month.

Kanda expressed that there are doubts in the market about whether the US CPI data or other factors stimulated the yen, and he also believes that the market's interpretation based on the US CPI is reasonable.

He mentioned that significant exchange rate fluctuations have a major impact on the lives of Japanese people, and the yen's volatility is large, deviating from the fundamentals. Kanda reiterated that the recent yen movements have not reflected the fundamentals, and objectively speaking, the speed of yen fluctuations has always been quite rapid.

In response to this, Chris Scicluna, Chief Economic Researcher at Daiwa Capital Markets, stated,

"The Japanese Ministry of Finance will not confirm this quickly, but the extent of this fluctuation gives a strong impression that the Ministry of Finance has taken action and seized the opportunity after the US CPI data."

Investors have been selling the yen for months as Japan's interest rates are much lower than elsewhere, leading to an accumulation of short positions in the yen, forcing some to close positions. Last week, the yen hit its weakest level since 1986, prompting Japanese authorities to once again state that they will take action to support the currency if necessary. This has also raised concerns in the market about the sudden fluctuation of the yen. Strategists and market participants have differing opinions on whether Thursday's volatility is due to options trading unwinding or market intervention.

Last year, the yen depreciated, making it the worst-performing currency among G10 countries. Market sentiment was so low that even after the Bank of Japan's first rate hike since March 2007, the market remained predominantly bearish on the yen. The latest weekly data from US regulatory agencies shows that speculators held short positions against the yen worth $14.26 billion, close to the 6.5-year high in April Analysis suggests that theoretically, the larger the short interest position, the greater the range for investors to reverse their positions, which will drive the strengthening of the Japanese Yen against the US Dollar.

Some analysts believe that although the surge in the Japanese Yen may seem exaggerated compared to the movements in the US fixed income market and the US Dollar after the release of US data, it is still too early to determine the reasons behind it. Other analysts think that US interest rates are already in a long position, and the market expects the yield curve to steepen, while the foreign exchange market is still shorting the Japanese Yen. Given this positioning, it is expected that any unexpected data will lead to more volatility in the Japanese Yen