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Yen down 0.6% vs dollar after brief spike

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Bank of Japan leaves short-term rates near zero

By Joice Alves

LONDON, April 26 (Reuters) - The yen fell on Friday and

was trading around its weakest level in three decades, having

briefly spiked against the dollar, with markets on edge about

possible intervention after the Bank of Japan kept interest

rates on hold.

In a volatile trading day, the yen was last down

0.66% at 156.67, after briefly jumping to 154.97, having hit

minutes earlier its lowest level of 156.82 per dollar since

1990.

The yen also briefly rallied against other major currencies

but last traded near its weakest level in almost 16 years

against the euro, at 168.23, and its softest in 11

years against the Australian dollar.

The sudden jump left traders on high alert for signs of

intervention. It was not immediately clear what caused the move.

After a two-day meeting, the Bank of Japan left its

short-term interest rate target at 0-0.1% on Friday and made

small upward adjustments in its inflation forecast. Investors

had not expected a policy shift but took the decision as

confirmation that only small moves lie ahead.

BOJ Governor Kazuo Ueda told a press conference after the

rate decision that monetary policy did not directly target

currency rates, but exchange-rate volatility could have a

significant impact on the economy and prices.

"If yen moves have an effect on the economy and prices that

is hard to ignore, it could be a reason to adjust policy," he

said.

Jane Foley, head of FX strategy at Rabobank, said traders

had been wondering "whether the Ministry of Finance and BoJ

would at least check prices today, but we've had no confirmation

that has happened."

"Certainly the market has been on tenterhooks, and is very

sensitive to any sign that the BoJ could be doing that today."

One London-based currency analyst said he suspected the move

higher in the yen was down to a position squeeze that sparked

others to sell dollars against the Japanese currency in a

nervous market.

INTERVENTION WATCH

Traders have been on watch for weeks for possible

intervention by Japanese authorities, as even a historic exit

from negative rates has failed to lift the currency.

The yen's 11% drop against the dollar this year is the

largest fall of any G10 currency, driven mostly by the wide gap

between U.S. and Japanese government bond yields, which is more

than 378 basis points for the 10-year debt.

That encourages borrowing and short-selling yen in order to

earn better interest, or carry, in dollars and other currencies.

The gap could widen even further, and exacerbate pressure on

the yen, if data due at 1230 GMT shows a rise in the Federal

Reserve's preferred inflation measure - the U.S. core PCE price

index.

Japanese Finance Minister Shunichi Suzuki said on Friday he

was closely watching currency moves and was prepared to take

full action in response.

Japan intervened in the currency market three times in 2022,

selling the dollar to buy yen, first in September and again in

October as the yen slid at the time towards a 32-year low of 152

to the dollar.

Traders now figure there is not much Tokyo can do to reverse

the currency's slide while interest rates and momentum are

heavily skewed against it.

Elsewhere, yen selling lifted the Australian and New Zealand

dollars, and the Aussie is set for its largest weekly

gain this year after a surprisingly hot inflation report.

Sterling and the euro were steady,

holding gains made on Thursday when data showed the U.S. had

grown at its slowest pace in nearly two years.

The U.S. dollar traded 0.02% higher against a basket

of currencies at 105.63, after sliding to two-week lows earlier.