April 29 (Reuters) - The yen jumped against the dollar on Monday, with traders citing yen-buying intervention by Japanese authorities as a trigger for the bounce in a currency languishing at levels last seen over three decades ago.
The dollar tumbled to a low of 154.40 yen from as high as 160.245 earlier in the day. Banking sources said Japanese banks were seen selling dollars for yen . The U.S. currency was last trading at 156.22 yen.
The Wall Street Journal on Monday said Japanese financial authorities had intervened in the market, citing people familiar with the matter.
Traders had been on edge for weeks for any signs of action from Tokyo to prop up a currency that has lost 11% against the dollar so far this year, trading at 34-year lows despite the central bank's historic exit from negative interest rates last month.
Currency traders have bet that despite the change, Japanese rates will remain low for some time in contrast to relatively high U.S. interest rates.
As a result, Japanese government bonds offer yields far below U.S. Treasuries and other foreign sovereigns, which draw a constant flow of Japanese money abroad, keeping the yen under pressure.
Japan's top currency diplomat Masato Kanda declined to comment when asked if authorities had intervened, but said the current developments in the currency market were "speculative, rapid and abnormal" and could not be overlooked.
Japan's Ministry of Finance (MOF) was not immediately available for comment, with markets in the country closed for a holiday on Monday.
"Today's move, if it represents intervention by the authorities, is unlikely to be a one-and-done move," said Nicholas Chia, Asia macro strategist at Standard Chartered Bank in Singapore.
"We can likely expect more follow through from MOF if the dollar/yen pair travels to 160 again. In a sense, the 160-level represents the pain threshold, or new line in the sand for the authorities."
A weaker yen is a boon for Japanese exporters, but a headache for policymakers as it increases import costs, adds to inflationary pressures and squeezes households.
Bank of Japan Governor Kazuo Ueda told a press conference after a meeting last week that monetary policy does not directly target currency rates, although exchange-rate volatility could have a significant economic impact.
Illustration picture of Japanese yen and U.S. dollar banknotes
Banknotes of Japanese yen and U.S. dollar are seen in this illustration picture taken September 23, 2022. REUTERS/Florence Lo/File Photo Purchase Licensing Rights, opens new tab
The yen had moved nearly 3.5 yen between 158.445 and 154.97 on Friday as traders vented their disappointment after the central bank kept policy settings unchanged and offered few clues on reducing its Japanese government bond (JGB) purchases - a move that might help put a floor under the yen.
"Whether it is in effect intervention, we will only know later," said Mahjabeen Zaman, head of foreign exchange research at ANZ in Sydney.
"In past interventions, we have seen that the immediate response of the yen is it moves by a few yen but then it trades back in line with fundamentals and I think the biggest driver for dollar/yen is the U.S.-Japanese yield differentials."
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The BOJ is not mandated to manage the currency, but a weak yen complicates its objective of achieving sustainable inflation. It cannot raise rates quickly either, for fear of destabilising Japan's heavily indebted government and economy.
The suspected intervention happened days ahead of the Federal Reserve's policy review on May 1. Expectations for Fed rates cuts have been pushed back all year as U.S. inflation remained elevated. Policymakers, including Fed Chair Jerome Powell, have emphasised rate changes will be dependent on data.
That could mean interventions might help put a floor under the yen only if the central bank policy also shifts.
"A combination of BOJ demonstrating urgency to normalise policy and MOF conducting FX intervention may perhaps be more effective than the MOF doing a solo," said Christopher Wong, currency strategist at OCBC in Singapore.
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 towards 152 to the dollar, a 32-year low at the time. Tokyo is estimated to have spent around $60 billion defending the currency at that time.
The United States, Japan and South Korea agreed earlier this month to "consult closely" on currency markets in a rare warning and Tokyo has stepped up its rhetoric against excessive yen moves.
On Monday, the European Central Bank declined to comment on the action in the currency market.
The yen has also hit multi-year lows against the euro, Australian dollar and Chinese yuan.
Reporting by the Reuters Markets Team; Additional reporting by Amanda Cooper, Ankur Banerjee, Stella Qiu, Tom Westbrook, Takaya Yamaguchi and Leika Kihara; Writing by Vidya Ranganathan and Shri Navaratnam; Graphics by Pasit Kongkunakornkul; Editing by Neil Fullick, Christina Fincher and Tomasz Janowski
