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Foreign Exchange

Japanese stealth intervention reveals policy change in Tokyo

Figures from Japan’s Ministry of Finance have shown that Tokyo has changed its intervention strategy as it battles to stem demand for the yen.

The MoF’s quarterly intervention operations report confirmed that the Japanese authorities carried on undertaking stealth intervention to weaken the yen in early November, after coming into the market in record size on October 31. The figures confirmed Tokyo sold ¥8.072 trillion against the dollar on October 31 when USDJPY hit a post-war low of ¥75.35 and threatened to inflict more pain on the country’s exporters, which were already reeling from the effects of March’s earthquake and subsequent nuclear disaster.

The data revealed Japan then followed this up with three more bouts of previously unannounced dollar buying, totalling ¥0.283 trillion on November 1, ¥0.228 trillion on November 2, ¥0.203 trillion on November 3 and ¥0.306 trillion on November 4.

“The report provides confirmation that the Japanese authorities altered their intervention strategy, with the most recent bout of intervention both more aggressive in size and undertaken over a more prolonged period,” says Lee Hardman, strategist at Bank of Tokyo-Mitsubishi UFJ.

The previous three bouts of intervention from Tokyo last year only lasted one day, totalling ¥0.693 trillion on March 18, ¥4.513 trillion on August 4 and ¥2.125 trillion on September 15.

Analysts said it was notable that intervention was becoming more frequent, indicating that Tokyo was becoming more flexible with its intervention strategy.

Furthermore, the stance of the MoF has changed little since November, with Tokyo increasing its rhetoric over the strength of its currency in recent days as USDJPY threatens once more to drop through its post-war low.

Overnight, Jun Azumi, Japan’s finance minister, said he would “not rule out any measures” to protect the country’s national interests from speculative distortions in the market.

The interventions in October and November were unusual, however, in that they were unilateral and counter to the normal G7 mantra that the market should set the level of FX rates.

Indeed, Japan did come under some criticism from the US towards the end of last year, when Washington recommended that Tokyo should concentrate on stimulating its economy rather than intervening.

Jane Foley, currency strategist at Rabobank, said fear of the wrath of the US and other G7 partners could potentially stay the hand of the MoF from intervening in the market this year.

“That said, with the enormous liquidity adds by the Bank of Japan failing to provide much stimulus to the economy and with the fiscal position becoming increasingly uncomfortable, the MoF is likely to hold the threat of intervention over the market for the foreseeable future,” she says.

“We would continue to view any flurries in USDJPY to the ¥76.00 area as buying opportunities.”

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