Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The Japanese government appears to have deployed roughly $35bn supporting the yen on Monday, according to money market data released by the Bank of Japan.
Traders and economists said the data, released on Tuesday evening, all but confirmed that the Japanese authorities had stepped into the markets on Monday shortly after the yen hit a 34-year low of just under ¥160 against the US dollar.
The BoJ figures arrived a few hours before the yen began falling sharply again against the dollar during London-hours trading, prompting brokers to predict that the Japanese authorities might step in again.
Although official confirmation of the scale of Monday’s intervention is unlikely to come from the Ministry of Finance until the end of the month, analysts said that a good “rough and ready” confirmation could be inferred from the BoJ figures.
“[The data] raises the probability that this was, indeed, an official intervention,” said Izumi Devalier, head of Japan economics at Bank of America.
The scale of the probable intervention — the first since 2022’s $62bn of yen purchases and a larger initial response than many traders had expected — underscores the Japanese government’s unease with a sharp slide in the yen this year.
The slump was provoked by signals that the US Federal Reserve will have to keep interest rates higher for longer to tame inflation while the BoJ appears in no hurry to lift borrowing costs further after March’s shift away from negative interest rates. It is uncomfortable for the government as Japanese households feel the pinch of higher imported energy and food costs.
In the early afternoon on Monday, which was a national holiday in Japan and meant that market liquidity was far lower than normal, the yen surged to around ¥155 per dollar. A second surge of yen purchases took place several hours later when London trading was under way, market participants said.
The BoJ publishes daily figures projecting changes to its current account balance. Money market brokers produce their own forecasts of what these levels will be, and a large discrepancy can be a tell-tale sign that intervention took place.
Tuesday’s deficit of ¥7.56tn, diverged by roughly ¥5.5tn, or $35bn, from brokers’ forecasts.
The chief purpose of the intervention, said currency analysts, was not just to push the yen higher, but to encourage investors to ditch bearish bets that had been placed 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 the authorities would act when appropriate, but noting that the yen’s decline had been excessive and driven by speculators.
The yen resumed its slide on Tuesday, falling to ¥157.50 against the dollar having traded at ¥154.50 in the wake of Monday’s intervention.
Although traders said that the effect of the suspected intervention had been eye-catching on the day, the fundamentals behind yen weakness — the wide differential between low Japanese interest rates and higher US rates — remained firmly in place.
The Japanese government had been at pains not to draw a fixed “line in the sand” level of the yen that would trigger intervention. But traders said that Monday’s action had, in effect, shown where Japanese tolerance lines were, which could embolden some speculators to bet against the yen until it begins to approach ¥160 again.
“There are definitely hedge funds out there who are planning to challenge a lower level on the yen again, and who see the [stronger yen] today as an entry point for that trade,” said one Tokyo-based foreign exchange broker.
