Photo/Illutration Banknotes of Japanese yen and U.S. dollars are seen in this illustration picture taken on Sept. 23, 2022. (REUTERS)

TOKYO--The yen surged against the dollar in early Asian hours on Thursday on what traders suspected was another round of intervention by Japanese authorities to stop a sharp slide in the currency.

The dollar fell sharply to precisely 153 yen from about 157.55 yen for reasons that were not immediately clear , but traders and analysts were quick to say it was dollar selling ordered by Japan's Ministry of Finance to support a currency languishing at 34-year lows.

The latest move came in a quiet period for the currency pair, after the U.S. stock market had closed and with the Federal Reserve's monetary policy meeting ending hours earlier.

The dollar was already on the back foot after Fed Chair Jerome Powell confirmed that the central bank's bias was towards interest rate cuts, even if the timing has been delayed by sticky inflation.

"There's no doubt the MOF intervened," said Daisaku Ueno, chief FX strategist at Mitsubishi UFJ Morgan Stanley Securities, who says officials have set 160 yen per dollar as their "final defense line."

"This morning's intervention is proof that Japanese authorities will intervene any time of the day, and any day of the year," he added. "They will continue to intervene."

The yen has been under pressure as U.S. interest rates have climbed and Japan's have stayed near zero, driving cash out of yen and into higher-yielding assets.

The pressure has intensified since March as expectations for Fed rate cuts receded, reinforcing the yen's status as a cheap funding currency.

When contacted by Reuters, Japan's vice finance minister for international affairs, Masato Kanda, who oversees currency policy, said he had no comment on whether Japan had intervened in the market.

A U.S. Treasury spokesperson declined to comment on the move in the currency pair.

CHALLENGING

The difficulty in arresting the yen's slide has been made clear by the speed at which the currency has reversed direction after its spike.

As of 0148 GMT, the yen was more than 1% lower at 156.23 per dollar, giving up more than half the ground it gained overnight.

And it remains down about 10% against the dollar this year amid receding bets for near-term Fed rate cuts, while the Bank of Japan has signalled it will go slow with further policy tightening after its first rate hike since 2007 in March.

The gap between long-term government bond yields in the two countries is a yawning 376 basis points, which helped push the yen to the weakest since April 1990 at 160.245 per dollar on Monday.

That milestone also triggered a sharp rebound in the yen, which official data earlier this week suggested was due to Japanese intervention totalling about $35 billion, close to a record amount. The finance ministry has declined to say whether or not it was behind the move.

"As long as there is a huge gulf between U.S. and Japanese rates, the efforts from the Bank of Japan to push against these fundamentals will likely have limited effect," said James Kniveton, senior corporate FX deal at Convera in Melbourne.

"The market is likely seeing the lower USD/JPY rate when intervention occurs as an opportunity to buy dips rather than a sign of a trend reversal. The Bank of Japan does have a lot of firepower, but currently they are swimming against the tide."

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