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The Japanese government appears to have injected about $35 billion in support to the yen on Monday, according to short-term money market data released by the Bank of Japan.
Traders and economists said the figures, released Tuesday night, largely confirmed that Japanese authorities intervened in the market on Monday, just after the yen hit a 34-year low of just under 160 yen against the dollar. Ta.
The Bank of Japan's figures were released hours before the yen began to fall sharply against the dollar again during London time trading, prompting brokers to predict that Japanese authorities could intervene again.
While formal confirmation of the scale of Monday's intervention is unlikely to be officially released by the Ministry of Finance until the end of the month, analysts say the Bank of Japan's figures can infer sufficient “roughly ready” confirmation. Stated.
“[The data] It is increasingly likely that this was in fact an intervention by the authorities,” said Izumi Desvalier, head of Japan economics at Bank of America.
The scale of the expected intervention – the first since a $62 billion yen purchase in 2022 and an initial response that exceeds many traders' expectations – underscores Tokyo's anxiety about the yen's sharp decline this year. ing.
While the Bank of Japan appears to be in no hurry to raise borrowing costs further after exiting negative interest rates in March, the US Federal Reserve is likely to keep interest rates high for an extended period of time to rein in inflation. The signal that something needed to be done caused a recession. The situation is jarring for the government, as Japanese households are feeling the pinch from soaring prices for imported energy and food.
In the early afternoon on Monday, the yen soared to around 155 yen to the dollar, as Japan was on a public holiday and market liquidity was much lower than usual. The second surge in yen buying occurred a few hours later during trading in London, market participants said.
The Bank of Japan publishes figures every day that predict changes in current account balances. Money market brokers have made their own predictions of what these levels will be, and large deviations can be a clear sign that intervention has taken place.
Tuesday's deficit was 7.56 trillion yen, about 5.5 trillion yen ($35 billion) different from brokerage forecasts.
Currency analysts said the main purpose of the intervention was not just to encourage the yen to appreciate, but to encourage investors to end bearish bets they had made against the Japanese currency in recent days.
On Monday, Japan's chief currency diplomat, Masato Kanda, refused to confirm whether any intervention had taken place, only reiterating that authorities would act when appropriate, but said the yen's decline was overreaching and caused by speculators. It was pointed out that
The yen resumed its decline on Tuesday, dropping to 157.50 yen to the dollar from trading at 154.50 yen following Monday's intervention.
Traders said that while the impact of the interference allegations had gained attention on the day, the fundamentals behind the yen's weakness – the wide gap between low interest rates in Japan and high interest rates in the US – remained firmly in place. He said there was.
The Japanese government was at pains to avoid drawing a “certain line in the sand'' level for the yen that would trigger intervention. But traders said Monday's action effectively showed where Japan's tolerance line is and could embolden some speculators to bet against the yen until it starts to approach 160 yen again. He said there is.
“There are definitely hedge funds that are planning to challenge the weaker yen level again and are expecting the yen to fall. [stronger yen] Today is the entry point for that trade,” said a Tokyo-based forex broker.
