The yen suddenly weakened again on Friday – after four days of fairly solid gains – igniting the FX intervention rumour mill (again):
This despite a rather curious form of denial by Japan’s vice finance minister Fumihiko Igarashi on Friday afternoon, reported by Bloomberg, that he had “not heard of” any official intervention in the foreign-exchange markets.
That inimically inscrutable attitude – what one trader called “all this Mickey Mouse known-unknown Bank of Japan banter” – was neatly summed up by a particularly cynical broker in an internal daily note (our emphasis):
The jagged holiday calendar this week created near-perfect laboratory conditions for black operations in the currency markets if that is indeed what we witnessed in Tokyo just after lunch. As yet nobody’s willing to go on the record saying today’s $/yen spike was actual intervention but the market didn’t care at the exact moment of impact, with wounds of 15 Sep [Tokyo's initial move to intervene to sell yen in the currency markets] so fresh, and the possibility was enough to rip NKY 15 ticks for a textbook Japan-only upside crash…
Adding to speculation that intervention had – or was about to – occur, Bloomberg’s report, filed mid-afternoon Tokyo time (early morning BST), noted:
The yen weakened, snapping a four- day gain versus the dollar, and Asian stocks pared losses on speculation Japan will sell its currency for a second time in a month to protect exporters’ earnings.
“Wariness over possible intervention may be spurring selling of the yen,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “Any such action is likely to limit the downside of the dollar against the yen.”
The yen has gained more than 1.4 per cent against the dollar since hitting a one-month low last week after Tokyo intervened to sell yen in the currency markets in a long-threatened push to weaken the currency from the strongest level in 15 years.
Some analysts expressed surprise about the extent of the hype in Tokyo’s markets, given that top Japanese officials – from the prime minister, Naoto Kan, to his finance minister, Yoshihiko Noda and down – have repeatedly stated Tokyo would intervene again to further curb the yen.
As one broker noted: “Maybe they did, maybe they didn’t – or maybe they’re about to… it could very well just have been the BoJ checking rates and spooking the market – though it would hardly be a surprise if the BoJ was back in there….”
In his most recent statement on the issue, Kan told the FT in an interview on Tuesday that Japan stands ready to intervene again in foreign exchange markets, but also plans to put in place broader economic and monetary policies that will help to weaken the yen.
Kan stressed that Tokyo’s intervention last week was forced by “drastic” exchange rate moves, a reference to the 15-year highs Japan’s currency hit against the dollar following his victory in a ruling party leadership battle.
As for Friday’s “maybe-maybe-not” possible intervention, as yet another bemused trader remarked: Whatever the truth, “for this to keep working the next bullet needs to be real”.
Related links:
More yennery, what next? - FT Alphaville
In-depth: Yen intervention – FT.com
Inflation and the BoJ - FT Alphaville
What next for the yen: ‘A lot of fake movements’ – FT Alphaville