Yen surges after Japan intervenes with first support since 1998

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By Alun John, Gertrude Chavez-Dreyfuss and Harry Robertson

LONDON/NEW YORK (Reuters) - The Japanese yen jumped across the board on Thursday after monetary authorities intervened in the foreign exchange market to boost the battered currency for the first time since 1998, although analysts said Japan may struggle to keep the yen strong for long.

The dollar was last down 1.5% at 141.91 yen. It hit a low of 140.31 after the intervention, having earlier reached a fresh 24-year peak of 145.9 yen. The spread between the day's high and low for the pair was the widest since June 2016.

The euro, Australian dollar and pound also plunged against the Japanese currency, before regaining a little ground.

"We have taken decisive action," Japan's Vice Finance Minister for international affairs Masato Kanda told reporters, responding in the affirmative when asked if that meant intervention.

Confirmation of the intervention came just hours after the BOJ decided to maintain low interest rates to support the country's fragile economic recovery.

BOJ Governor Haruhiko Kuroda told reporters the central bank could hold off on hiking rates or changing its dovish policy guidance for years.

In contrast, central banks around the world, most notably the U.S. Federal Reserve, are raising rates aggressively and the policy divergence has weighed on the yen.

However, analysts said Japan can't keep propping up the currency on a sustained basis.

"Over the next three to six months or possibly even longer, as long as those diverging paths of monetary policy are still in place and those differences persist, you'll continue to see a weaker yen," said Brendan McKenna, international economist and FX Strategist at Wells Fargo (NYSE:WFC) Securities.

"Yields in the U.S. today are up almost six basis points or so and yields in Japan are down. So I think if anything the spread should continue to favor the U.S. dollar as we go forward, and that's something that will continue to result in a weaker yen through the end of this year and probably into early 2023," he added.

The U.S. 10-year yield hit 3.68%, the highest since February 2011. It was last up 16 basis points at 3.674.

Even after Thursday's moves, the dollar is still up 23.2% against the yen this year.

GRAPHIC: Japan's history of yen interventions https://fingfx.thomsonreuters.com/gfx/mkt/xmpjoykbovr/Pasted%20image%201650518854154.png

CENTRAL BANK BONANZA

In a very busy day for markets, the pound pared the small advance it had made in London trading after the Bank of England raised interest rates by 50 basis points.

The hike was in line with expectations but markets had been pricing in a small chance of a larger 75 bp move.

Sterling was last 0.2% higher against the dollar at $1.1295, not too far from a fresh 37-year low of $1.1213, hit in Asia trading.

"I'm quite surprised that the bank didn't take this opportunity to go 75 bps, particularly given the cover from some of the other global central banks. The pound looks particularly vulnerable here if the bank stays behind the curve," said Hugh Gimber, global markets strategist at JP Morgan Asset Management.

The euro was little changed at $0.9838, recovering from a new 20-year trough hit earlier in the global session.

The dollar index - which measures the greenback against a basket of six other major currencies - was down 0.3% at 111.17, sliding from a 20-year high of 111.81 hit early in the day following the conclusion of the Fed's policy meeting on Wednesday.

The U.S. central bank issued new projections showing rates peaking at 4.6% next year with no cuts until 2024. It raised its target interest rate range by another 75 basis points (bps) overnight to 3%-3.25%, as was widely expected.

The dollar was already supported by demand for safe-haven assets after Russian President Vladimir Putin announced he would call up reservists to fight in Ukraine.

Separately, the Swiss franc tumbled after Switzerland's central bank raised rates by 75 bps, when some had talked up the possibility of a full percentage point move.

The dollar and euro both climbed roughly 1.5% against the franc, with the dollar last at 0.9808 francs and the euro at 0.9647 francs.

The Norwegian crown eased against the euro after the central bank there hiked interest rates by an expected 50 bps, and said there may be a more gradual approach to tightening ahead.

The euro was last up 0.5% at 10.2205 crowns.

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Currency bid prices at 10:43AM (1443 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 111.2700 111.4700 -0.16% 16.315% +111.8100 +110.4600

Euro/Dollar $0.9825 $0.9838 -0.14% -13.58% +$0.9908 +$0.9807

Dollar/Yen 141.8850 144.1050 -1.53% +23.26% +145.8900 +140.3100

Euro/Yen 139.41 141.73 -1.64% +6.98% +143.7000 +138.7200

Dollar/Swiss 0.9806 0.9663 +1.45% +7.47% +0.9849 +0.9622

Sterling/Dollar $1.1276 $1.1270 +0.06% -16.62% +$1.1363 +$1.1213

Dollar/Canadian 1.3488 1.3466 +0.15% +6.67% +1.3544 +1.3410

Aussie/Dollar $0.6633 $0.6633 +0.00% -8.75% +$0.6670 +$0.6574

Euro/Swiss 0.9634 0.9507 +1.34% -7.09% +0.9715 +0.9468

Euro/Sterling 0.8711 0.8729 -0.21% +3.70% +0.8759 +0.8692

NZ $0.5845 $0.5853 -0.02% -14.50% +$0.5887 +$0.5806

Dollar/Dollar

Dollar/Norway 10.4125 10.3560 +0.46% +18.10% +10.4175 +10.2930

Euro/Norway 10.2305 10.1766 +0.53% +2.17% +10.2492 +10.1386

Dollar/Sweden 11.0818 11.0627 +0.07% +22.89% +11.1375 +10.9718

Euro/Sweden 10.8836 10.8759 +0.07% +6.35% +10.9290 +10.8530

(Reporting Alun John and Harry Robertson in London, Gertrude Chavez-Dreyfuss in New York and Kevin Buckland in Tokyo; Additional reporting Bansari Mayur Kamdar in Bengalaru; Editing by Kirsten Donovan)