Analysis: Will they or won’t? Japan uses stocksak to help yen by playing guessing games

© Stocksak. FILE PHOTO – This illustration picture shows a banknote made of Japanese yen. It was taken June 15, 2022. REUTERS/Florence Lo/Illustration

By Leika Kihara and Tetsushi Kajimoto

TOKYO, Stocksak – Japanese authorities are heavily relying upon psychological tactics to combat yen bears. This means keeping markets guessing over their foreign exchange intervention rather that trying to stop the currency from falling to multi-decade lows.

Analysts and traders attribute the recent whipsawing in the yen to government efforts against a stubbornly strong dollar. There are also concerns about the negative economic effects of sharp yen drops.

The Ministry of Finance (MOF), while confirming its entry into the foreign currency market on Sept. 22, has not commented on any other possible instances of intervention, including a sharp rise in the Japanese currency on Friday.

Masato Kanda, Japan’s top currency diplomat, declined to comment Monday when the yen rose to 145.70 against USD from 149.70 in early Asia trading in an additional suspected yen-buying intervention.

Analysts believe that the strategy of keeping mum keeps investors guessing about intervention and discourages speculators testing the yen’s new lows.

This contrasts with Japan’s response to the 2011 earthquake and tsunami, which was meant to reduce sharp yen increases. In Japan, authorities announced most of these interventions.

“With stealth intervention authorities can give the markets the impression that they are stepping in more often than they actually are,” said AtsushiTakeda, chief economist at Itochu Research Institute. “It’s psychological tool that can limit actual intervention.”

Contrary to 2011, government’s recent interventions require selling dollars, not yen. This is more difficult because it taps into Japan’s limited foreign reserves.

Japan has $1.3 trillion in foreign reserve, which is second in the world. However, Japan used nearly 15% of available funds for intervention to fund the Sept. 22 action. This made regular actions expensive and unsustainable.

The last major series of yen buying interventions by the government occurred during the Asian financial crisis 1997-1998. In most cases, Japanese authorities did not announce whether or not they had intervened.

Tokyo will have to rely more heavily on its words or silence to support the yen.

Kanda spoke to Stocksak Saturday to say that the MOF, which oversees the exchange-rate policy, would continue to hold off commenting on whether or not it intervened.

According to a government official, “The MOF will likely continue its stealthy approach whenever it intervenes.” “It’s hard for me to understand why it would suddenly want it to start announcing it stepped into,” the official stated, a view that was also shared by another official.

When Shunichi Suzuki was asked by reporters Monday about his plan, he said that Japan will only take “necessary actions” against speculative movements in the yen.


Officials from the government know that a single intervention cannot reverse the dollar’s broad uptrend. Therefore, any action in the currency markets will be directed at slowing sharp falls of the yen rather than defending a level.

Friday’s MOF intervention was a suspected intervention as the yen fell to a new 32-year low at 151.94 to $1.

The markets were rife in speculation. Tokyo intervened, including on October 13, when the Japanese currency rose a full 12 yen upon hitting a 32-year low of 147.665 per dollar. The dollar plunged 46 pips on Oct. 20 after it rose above 150 yen.

Prime Minister Fumio Kishhida must show that he is taking steps to reduce the currency’s decline, which has boosted import prices, despite being under fire from the public.

Policymakers have few options other than to wage a war with speculators, especially since the central bank has not indicated any intention of raising interest rates.

Investors will find out how much recent interventions cost when the MOF releases monthly data on Oct. 31.

TsuyoshiUeno, a senior economist with NLI Research Institute, said that stealth intervention is designed to keep markets on edge.

“Considering the recent steep rise of U.S. Treasury yields,” the rate at which the yen falls has been quite moderate. Although stealth intervention is better than nothing, it’s still just buying time.

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Stocksak Editorial

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