It is highly likely that Japan’s monetary authorities were intervening to buy yen in the foreign exchange market early on the 2nd, Japan time, when the yen exchange rate suddenly rose to the 153 yen level to the dollar. There is a large discrepancy between the Bank of Japan’s forecast for the change in current account deposits on the 7th, which was announced on the 2nd, and the market estimate, suggesting that the intervention was a factor.
The results of the settlement of foreign exchange transactions will be reflected in the Bank of Japan’s current account balance forecast on the 7th, if the intervention is carried out. The decrease in fiscal and other factors, which reflects foreign exchange intervention, was 4.36 trillion yen. Tokyo Tanshi predicts a decrease of around 700 billion yen and Ueda Yagi Tanshi predicts a decrease of 1.1 trillion yen, and the scale of the intervention is estimated to be approximately 3.5 trillion yen, the difference from the average.
Yuichiro Takai, a researcher at Totan Research, pointed out, “The downturn in figures for fiscal and other factors was large, and it seems highly likely that the government carried out an intervention to buy yen worth around 3 trillion yen.” While there was some speculation that the exchange rate was carried out at a time when the foreign exchange market was weak, he said, “The fact that it is slightly lower than the previous one on April 29 fits the image.”
The yen exchange rate rose sharply from 157 yen to around 153 yen between 5 a.m. and 6 a.m. on the 2nd. On the 29th of last month, as speculation about Japan’s intervention continued to rise, Finance Minister Masato Kanda responded to an interview with Bloomberg, saying, “I have nothing to say right now about whether there will be foreign exchange intervention.” If there was a large difference between the Bank of Japan’s current account balance forecast and the market’s estimate, it would indicate that intervention had taken place, and this data once again drew attention.
The yen soars in the early morning of the 2nd due to renewed intervention – pay attention to the current account deposits at the Bank of Japan this evening
Hiroshi Suzuki, chief foreign exchange strategist at Sumitomo Mitsui Banking Corporation, points out the possibility of an intervention of around 3 trillion yen, saying, “Partly because we have entered a time when market trading is quite thin, a fairly small amount will cause the price range to change accordingly.” I have the impression that he has appeared.” By giving a sense of caution that the US Federal Open Market Committee (FOMC) will intervene 24 hours a day even if it is not Japan time, a certain level of restraint is being exercised ahead of the upcoming holidays in Japan and the release of US employment statistics. He suggested that he may have wanted to do so.
According to the CME Group, which responded to questions via email, the dollar/yen exchange rate on its platform (EBS spot trading) had reached a value of $42 billion (approx. 6.52 trillion yen) was traded. Of this amount, approximately 80%, or more than $33.2 billion, was made between 5:00 a.m. and 6:00 a.m.
Dollar/yen spot trading volume on the 29th was 12 trillion yen, the largest since 2016 – CME
Regarding the observation of an intervention on the 29th of last month, based on data from the Bank of Japan, it is highly likely that a 5.5 trillion yen-scale yen-buying intervention was carried out. Of the three yen-buying interventions that the Japanese government conducted in September and October 2022 totaling a total of 9.2 trillion yen, this is believed to be comparable in scale to the intervention on October 21, when it invested 5.6 trillion yen, the largest amount ever.
Hiroaki Muto, an economist at Sumitomo Life Insurance, said that while the effect of the intervention was temporary, authorities “view 160 yen as a shocking level that cannot be overlooked.” He said, “If the market moves by 2 or 3 yen a day, there is a possibility that additional intervention will be made.”
The presence or absence of foreign exchange intervention between April 26th and May 29th will be determined by the implementation status of foreign exchange balance operations announced by the Ministry of Finance on May 31st. Whether or not there was any intervention on April 29th and May 1st will be determined by daily data released around August.
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(Updated with comments from market participants)