The Bank of Japan (BoJ) is expected to announce on Monday that it has spent a possibly record-breaking amount on currency intervention this month to support the weakening yen. Meanwhile, market players want to know just how far authorities can go to ease the sharp decline in the Japanese currency. The USD / JPY exchange rate continued its rise on Monday, reaching the level of 148.50.
The yen weakened to a minimum in 32 years against the dollar in October this year
In October, Japan took a “tricky” approach to intervention
The brokers estimate that $ 24.9 billion was spent in October, almost doubling in September
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Jen backed by record funds. Further increase in the USD / JPY rate
A compilation of Tokyo money market brokers’ estimates indicates that Japan likely spent a record 5.4 trillion yen ($ 24.9 billion) in two consecutive trading days during its unannounced intervention on October 21 and 24, in response to the yen plunging to 32 an annual minimum of 151.94 per dollar on October 21. That would be almost double the 2.8 trillion yen the government in Tokyo spent last month during the first intervention in more than two decades to buy yen and sell dollars. The latest intervention helped trigger an immediate depreciation of the dollar by more than 7 yen, but the Japanese currency has come under renewed sell-off pressure since then.
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With robust US consumer spending data focusing on sustained inflation and dampening expectations of slower interest rate hikes by the Federal Reserve, while the Bank of Japan remains committed to ultra-low interest rates, the dollar rises again Monday by 0.8 % to 148.50 yen. Japan’s currency intervention figures, which include monthly totals released at the end of each month and daily spending in quarterly reports, are closely watched for indications of how much more Japan might be willing to spend on future interventions. Monday’s BoJ data will be subject to additional analysis after the finance ministry refrained from commenting on its market actions this month, adopting a discreet approach to intervention. While the markets want to explore just how willing Japan is to get involved in the intervention, there is no doubt that – at least for the foreseeable future – it has sufficient resources to continue entering the market. Indeed, leading Japanese currency diplomat Masato Kanda said the authorities’ resources to intervene were not limited.
Japan held approximately $ 1.2 trillion in foreign exchange reserves at the end of September (the second largest after China), of which about a tenth is held as deposits with foreign central banks and the Bank for International Settlements and can be easily used to sell dollars.
Moreover, four-fifths of Japan’s total foreign exchange reserves are held as US Treasury bonds that were bought during dollar-buying interventions at a time when the yen was appreciating. Analysts point out that these funds can also be easily converted into cash. Other resources include gold, the reserves of the International Monetary Fund (IMF) and the IMF’s Special Drawing Rights (SDRs), although it would take some time to raise dollar funds from these assets, ministry officials say.
The dollar (USD / JPY) continues to the north
The USD / JPY currency pair continued to rise at the start of the new week after stabilizing at around 146.00 last week. On Monday, the rate is gaining over 0.8% to reach 148.60 and everything indicates that buyers intend to re-test the long-term high at 151.94. Sustained breakthrough of this resistance could trigger another wave of yen sell-off, targeting the round 160.00 level.
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