The yen falls as the US dollar strengthens; the Federal Reserve confirms it has previously conducted inquiries about exchange rates

The yen is set to post its biggest single-day drop this month, with major currencies broadly declining, as U.S. economic data boosted U.S. Treasury yields and reinforced market expectations that the Federal Reserve’s rate cut path will be more measured in the coming months.

The yen, along with the New Zealand dollar and Swedish krona, led losses among G-10 currencies. During afternoon trading in New York, the yen fell as much as 1% against the dollar, hitting an intraday low of 154.87. The Bloomberg Dollar Index continued its upward trend, rising 0.5%, while the yield on 10-year U.S. Treasuries climbed 2 basis points to 4.08%.

The latest minutes released by the Federal Reserve further weighed on the yen. The minutes revealed that the Fed confirmed its New York trading desk had conducted price inquiries on behalf of the U.S. Treasury regarding the USD/JPY exchange rate.

“The rebound in U.S. Treasury yields is putting pressure on the yen,” said Shaun Osborne, a foreign exchange strategist at Scotiabank, “Short-term risks are mainly centered around overall market sentiment and how market participants assess oil price trends in light of the Middle East situation.”

Private sector employment data released on Tuesday reinforced investors’ views that the labor market remains robust. A series of strong economic indicators released on Wednesday, including industrial production and corporate equipment orders, supported U.S. Treasury yields.

Last month, the market speculated that Japanese authorities, possibly with rare assistance from the U.S., were preparing to directly intervene in the foreign exchange market to support the yen. This expectation peaked on January 24, when the yen surged rapidly during New York trading hours amid reports of price inquiries by the New York Fed. Such operations by Japanese officials often serve as a prelude to actual intervention.

The FOMC minutes released Wednesday, covering the meeting from January 27 to 28, showed that the Federal Reserve Bank of New York contacted financial institutions to inquire about the yen exchange rate “entirely” on behalf of the U.S. Treasury in January this year.

“In the days leading up to the meeting, after reports that the trading desk had requested indicative quotes for the USD/JPY exchange rate—the so-called ‘price inquiry’—the dollar weakened notably,” the minutes stated. “Officials noted that under the framework in which the New York Fed serves as fiscal agent for the U.S. Treasury, the trading desk made these inquiries entirely on behalf of the U.S. Treasury.”

Editor: Li Tong