The yen surged against the US dollar on Monday, surpassing the level it reached after government intervention in early August, amid speculation that Japanese authorities might use the US Labor Day holiday to support the currency. The yen gained as much as 1.4 per cent to touch ¥154.04 per dollar, its highest level since February, including a steep rise in the space of five minutes during the London morning. It was later trading around ¥154.58, up 1.1 per cent on the day. The move takes the currency’s gains against the greenback over September’s five trading sessions to 3.3 per cent, leading some strategists to conclude that the yen is finally changing course after more than a year of largely falling.

Lee Hardman, senior currency analyst at MUFG, said this could be something more sustainable, pointing to a widely expected move higher in Japanese interest rates and possible capital repatriation by Japanese pension funds. Monday’s move follows a massive ¥15.4tn ($99.6bn) intervention by Japanese authorities in July and August, which had unusual support from the US government. Markets are now pricing in a roughly three-quarters chance of a 0.25 percentage point rate increase by the Bank of Japan to 1.25 per cent next week, with speculation growing about a rare back-to-back hike in October.

However, some investors remain doubtful. Mark Richards, head of investment team for Dynamic Multi-Asset at BNP Paribas Asset Management, questioned whether the BoJ would have the stomach to be properly hawkish. One investor noted unusually large transactions ahead of the US Labor Day holiday but remained uncertain if intervention had occurred. Masayuki Nakajima of Mizuho warned that liquidity is likely subdued given the holiday, increasing wariness of official intervention. The yen’s rise has renewed concerns about a violent unwind of the carry trade, with Shrikant Kale of Jefferies stating that outstanding cross-border yen borrowing rose by two-thirds from ¥216tn in December 2021 to ¥360tn by March 2024 — the largest such build-up in three decades.