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The yen and the rupee rose on Monday as Japan stepped up its verbal intervention and India forced banks to unwind positions in the foreign exchange markets.
The yen strengthened by 0.4 per cent against the US dollar to trade close to ¥159.7. The rupee jumped at the open, climbing more than 1.4 per cent, but gave up almost all of its gains to trade around 94.6 to the dollar.
Most Asian countries are struggling with pressure on their currencies as higher oil prices cause a shock to their terms of trade.
Atsushi Mimura, Japan’s top currency official, warned that “decisive action” by the government might soon be necessary — remarks seen by traders in Tokyo as amounting to a final warning that intervention was imminent.
“We stand ready to respond on all fronts, and our focus is broad and comprehensive,” Mimura said.
One trader in Tokyo noted that “a strong verbal warning like this will certainly put a lot of guys on edge, but there are always going to be some that test things and now we’ve broken 160, we’ll see the testing continuing this week”.
The Japanese currency started the week trading at around ¥160.30 versus the dollar — its weakest point since 2024 and below a line where the government has previously intervened to provide support.
Yujiro Goto, chief FX strategist at Nomura, warned investors not to rule out the risk that, after weeks of verbal efforts, the Japanese authorities would finally resort to direct yen-buying intervention this week.
Last week, market speculation also centred on reports that the Japanese authorities were exploring the possibility of intervention in crude oil markets.
Speculation in crude markets is seen as pushing down the yen, deepening the Japanese government’s challenge as it attempts to shield households from the soaring cost of imported energy and other key commodities.
Goto said that, in practice, it was difficult for the government to sell oil futures to limit the rise in oil prices, and that the move amounted to a stronger form of verbal intervention.
Meanwhile, the rupee got its first chance to react to curbs on currency dealers by the Reserve Bank of India. It ordered them to limit open positions in the rupee to no more than $100mn at the end of each business day.
The curbs, announced after the market closed last Friday, could force banks to wind down positions worth billions of dollars. They have until April 10 to comply.
Over the weekend, India’s banks lobbied the RBI to rethink. Previously, the limit was 25 per cent of a bank’s capital.
“Market estimates suggest that the cumulative adjustment could run to $25bn-30bn,” Kunal Sodhani of Shinhan Bank wrote in a note. “By forcing an unwinding of these positions, the RBI is effectively engineering a near-term supply of dollars in the market.”
The rupee has been one of Asia’s worst-performing currencies even before the conflict in Iran began and is down more than 2.7 per cent since.
South Korea’s won also weakened 0.5 per cent to beyond Won1,518 to the dollar. High oil prices are damaging for resource-dependent Korea while foreign selling of domestic equities is adding to pressure on the currency.
Additional reporting by Daniel Tudor in Seoul
