JAPANESE officials may have spent some 5.5 trillion yen (S$52 billion) supporting the currency on Apr 29 to pull it back from new 34-year lows, Bank of Japan data suggested on Tuesday (Apr 30).
The central bank’s projection for Wednesday’s money market conditions indicated a 7.56 trillion yen net receipt of funds, compared with a 2.05 billion to 2.3 billion yen estimate from money market brokerages that excludes intervention.
Currency trades take two days to settle.
The data suggests Monday’s intervention was very close in size to the record 5.62 trillion yen spent on Oct 21, 2022.
The yen slid to 160.245 per US dollar on Monday, its lowest level in more than three decades, then rapidly reversed to recover nearly six yen, spurring speculation that Japanese authorities had intervened to prop up their currency.
Japanese officials have refrained from saying whether they intervened, but former top currency diplomat Mitsuhiro Furusawa said it was “highly likely” the authorities stepped in to prop up the yen given its sharp moves in both directions.
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“I don’t really know whether authorities calibrated the timing and waited until the US dollar hit 160 yen. The pace of falls was quite rapid from 158 yen to 160 yen though,” Furusawa, who oversaw Japan’s currency policy a decade ago, told Reuters on Tuesday.
Furusawa, who had also served as International Monetary Fund deputy managing director, said Japanese officials probably laid the ground for intervention when they met with their US and South Korean counterparts on the sidelines of IMF gatherings this month.
Shoki Omori, chief Japan desk strategist at Mizuho Securities said the net funds receipt figure reported on Tuesday, strongly suggested an intervention.
At the same time, the yen’s quick retracement of most of Monday’s move showed how difficult it was to stop the currency’s downward momentum, he said.
“This is very good news for hedge funds” and other speculators betting against the yen, Omori said.
The yen has depreciated more than 10 per cent against the US dollar so far this year, and was last changing hands at 156.89 per US dollar.
Analysts point to the gaping differentials between Japanese and US government debt yields as the force behind the yen’s slide.
Even after the Bank of Japan raised interest rates for the first time since 2007 in March, policymakers have signalled a go slow approach to further tightening, which has kept long-term Japanese government bond yields well below 1 per cent.
By contrast, equivalent Treasury yields have been pushing towards 5 per cent as a robust economy and stubborn inflation forced markets to scale back their bets on Federal Reserve rate cuts. The US central bank will announce its policy decisions on Wednesday, and market participants expect Chair Jerome Powell to retain his recent hawkish tone. REUTERS
