Currently, what’s left of the budget for further JPY selling intervention is estimated at 23.5 trillion yen (150 trillion yen minus 122 trillion yen of outstanding issuance as of end-June and estimated intervention of 4.5 trillion yen on August 4), according to Barclays Capital.
“The main reason for lifting the limit is to show the market that Japan has sufficient room for further JPY selling to keep speculators at bay if the yen strengthens too much,” says Masafumi Yamamoto, Tokyo-based FX strategist at Barclays Capital.
Analysts have noted that Japan’s authorities seem reluctant recently to directly weaken the currency since its 4.5 trillion yen selling intervention almost two months ago, but they also point out that with increasing risk aversion in global markets, the BoJ may return to direct intervention if there is excessive yen buying.
The increase of 15 trillion yen may seem modest compared to the increase of 40 trillion yen in 2004, but investors should be wary that intervention is still a tool in the Japanese arsenal that the authorities are willing to use.
“USDJPY breaking its all-time low of 75.95 will be a signal for further large-scale intervention, but perhaps a more important trigger will be the Nikkei falling below 8000 or EURJPY testing 100.00, since Japan has significant export links with the euro area,” says Yamamoto.