–Currency Intervention Suspected as Dollar Slumps from Above Y151 to Under Y146 in New York Friday
–Vice Finance Minister Kanda Declines Comment to Reporters in Tokyo
–Yen Remains Weak Amid Wide US-Japan Rate Gap; BOJ Seen Keeping Easy Stance
By Max Sato
(MaceNews) – The Japanese government and the Bank of Japan appear to have stepped into the currency market to sell dollars for yen during New York trading hours on Friday morning but officials declined comment to reporters, indicating they opted for a stealth operation to maximize impact.
The suspected dollar-selling intervention came at a time when the trend in the forex market to buy dollars for yen continues.
The Federal Reserve is expected to raise its policy interest rate by another 75 basis points from the latest target range of 3% to 3.25% on Nov. 1-2 while the BOJ is widely expected to maintain its easing stance, with a negative 0.1% for the overnight rate and around zero for the 10-year bond yield, at its Oct. 27-28 meeting, keeping the U.S.-Japan interest rate differential wide.
Dollar/yen charts showed a sudden plunge in the U.S. unit from a 32-year high of Y151.94 to under Y146 sometime after 10:30 a.m. EDT (1430 GMT) Friday, which was 11:30 p.m. JST. The dollar’s fall continued for about 90 minutes before picking up slightly to around Y147.
Vice Finance Minister Masato Kanda declined comment to reporters in the early hours of Saturday in Tokyo, according to reports by public broadcaster NHK and other media.
If Japan did intervene, it would be a different style from its last action. It is unknown whether the U.S. Treasury joined the suspected intervention.
In the Tokyo evening of Sept. 22, the MOF and the BOJ stepped into the market to stop what they saw as speculative forces from selling yen further against the dollar, temporarily defending the Y146 level, in their first yen-buying foreign exchange operation in about 24 years.
At the time, Kanda and Finance Minister Shunichi Suzuki spoke to reporters at the MOF to announce that Japan had just intervened.
The actual intervention, instead of verbal warnings, prompted the dollar to slip back to just above Y140 from Y145.90 on that day, but its effect didn’t last long as there was no indication that the U.S. joined the dollar-selling operation and the Fed’s aggressive tightening stance continues attracting investors to dollar assets.
Critics say the BOJ’s easing stance is fueling the yen’s slide, which is adding to already high import costs and hurting households and small businesses, but Governor Haruhiko Kuroda has repeatedly said the bank has no plans to raise rates for now while real wages are falling and the negative output gap lingers, adding that monetary policy is not conducted based on exchange rates.
It is uncertain whether the latest suspected intervention or more yen purchases could stem a further fall in the yen.
Unlike yen-selling interventions, for which Japan’s government basically has an unlimited supply of yen, its funds for dollar-selling operations are limited to Tokyo’s foreign reserves, which totaled $1.238 trillion at the end of September, down by about $54 billion from a month earlier.
The daily trading volume in the global forex market was estimated at $6.6 trillion in 2019, according the latest data from the Bank for International Settlements. The scale of the Tokyo forex market was estimated at $375.5 billion at the time and had grown to $478.5 billion by April this year, which would be Y70 trillion at the rate of Y147 to the dollar.
That’s a massive flow compared to Japan’s past daily forex intervention amount, which was often under Y1 trillion, and even compared to a large Y2.838 trillion ($19.3 billion) that Japan spent on its Sept. 22 intervention.