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According to money market data released by the Bank of Japan, the Japanese government appears to have deployed around $35 billion to support the yen on Monday.
Traders and economists said data released Tuesday evening all but confirmed that Japanese authorities intervened in markets on Monday, shortly after the yen hit a 34-year low of nearly 160 yen against the U.S. dollar.
The BOJ’s figures came hours before the yen began to fall sharply against the dollar again during London trading, prompting brokers to predict that Japanese authorities could intervene again.
Although it is unlikely that the Treasury will receive official confirmation on the scale of Monday’s intervention before the end of the month, analysts said a good “rough and ready” confirmation could be derived from the BoJ’s figures.
“[The data] “Increases the likelihood that this was actually an official intervention,” said Izumi Devalier, head of Japan economics at Bank of America.
The scale of the likely intervention – the first since $62 billion in yen purchases in 2022 and a larger initial response than many traders had expected – underscores the Japanese government’s concerns about a sharp fall in the yen this year Year.
The slump was triggered by signals that the Federal Reserve needs to keep interest rates higher for longer to contain inflation, while the BoJ appears in no rush to raise borrowing costs further after moving away from negative interest rates in March. It’s inconvenient for the government as Japanese households suffer from higher costs for imported energy and food.
The yen rose to around ¥155 per dollar in the early afternoon on Monday, which was a national holiday in Japan and meant market liquidity was far lower than normal. A second surge in yen buying came a few hours later as London trading was underway, market participants said.
The BoJ publishes daily figures forecasting changes in its current account balance. Money market brokers create their own forecasts at these levels, and a large discrepancy can be a tell-tale sign that intervention has occurred.
Tuesday’s deficit came in at 7.56 trillion yen, a deviation of about 5.5 trillion yen, or $35 billion, from brokerage forecasts.
According to currency analysts, the main purpose of the intervention was not only to push the yen higher, but also to encourage investors to abandon their bearish bets made against the Japanese currency in recent days.
On Monday, Japan’s chief currency diplomat, Masato Kanda, refused to confirm whether the intervention had taken place, repeating only that authorities would act if necessary, but pointing out that the yen’s fall had been excessive and caused by speculators had been.
On Tuesday, the yen continued its slide, falling to 157.50 yen against the dollar, after trading at 154.50 yen following Monday’s intervention.
Although traders said the impact of the suspected intervention was noticeable on the day, the fundamentals behind the yen’s weakness – the big difference between low Japanese interest rates and higher U.S. rates – remained firmly in place.
The Japanese government was anxious not to draw a firm “line in the sand” of the yen that would trigger intervention. But traders said Monday’s action actually showed where Japan’s tolerance lines are, which could encourage some speculators to bet against the yen until it gets closer to the ¥160 level again.
“There are definitely hedge funds that are planning to challenge the yen lower again and are seeing that [stronger yen] today as an entry point for this trade,” said a Tokyo-based forex broker.