Key Points:
This article is a follow up to: Yen fluctuates with intervention talks
Japan appears to have intervened in the foreign exchange market to defend the yen on Friday, according to calculations based on data from the Bank of Japan (BoJ) and private money brokers. The daily projection of BoJ released on Tuesday indicated that commercial banks’ deposits at the central bank would likely decrease by 2.74 trillion yen ($17.34 billion) on Wednesday due to fiscal factors. This was a notable difference from the 600 billion yen decline predicted by money-market brokers earlier in the month.
Foreign-exchange transactions typically settle within two business days, and with Monday being a national holiday in Japan, the timing aligns with intervention activities likely conducted on Friday. The 2 trillion yen gap between the forecast by the BoJ and the brokers’ estimates hints at the size of the possible intervention.
Picture: USD losing strength against the JPY, as observed on the VT Markets app.
Possible currency intervention
The Ministry of Finance has not confirmed any intervention, yet the substantial discrepancy in expected versus actual deposits at the BOJ suggests significant yen-buying activities. Fiscal factors such as government bond issuance, tax payments, and currency intervention affect changes in account balances at the BOJ. While money brokers account for known factors like bond issuance and maturities, they do not account for currency intervention, which explains the unexpected drop in deposits.
Recent market movements
Data from the previous week indicated that the Japanese government might have spent over 3 trillion yen to support the yen on Thursday. The yen experienced sharp appreciation against the dollar last week, spurring speculation about potential intervention.
The US dollar was trading around 158.45 yen, reflecting the impact of the likely intervention efforts.
Implications for day traders
For day traders, the potential intervention by Japan to support the yen presents both opportunities and risks. The intervention suggests that the Japanese government is committed to maintaining the strength of the Japanese yen, which could lead to increased volatility in the USDJPY pair. Traders should closely monitor official statements from the Ministry of Finance and the BoJ, as well as market reactions to any confirmed interventions.
