‘Covert’ intervention to prop up yen sends shock waves through markets

The Yomiuri Shimbun

15:50 JST, October 23, 2022

The recent “covert” currency intervention by the Japanese government and Bank of Japan sent shock waves through markets, as it was conducted without coordination with foreign authorities and came after the Tokyo market closed and before the weekend in overseas markets, when trading is light.

The yen-buying, dollar-selling intervention to stem the rapid depreciation of the yen was conducted by Japanese authorities from late Friday night to early Saturday Japan time.

In the foreign exchange market, the yen soared at one point from nearly ¥152 against the dollar to the low ¥146 range.

Government sources admitted Saturday that Japanese authorities had carried the intervention, which was done in secret.

It was the second known intervention by Japanese authorities this year in response to the yen’s ongoing depreciation, following one on Sept. 22. The covert intervention was the first since the autumn of 2011.

Unusual timing

In the office of a Japanese bank in New York, traders were glued to their monitors as the currency market suddenly became volatile and the yen began rapidly rising against the dollar.

The timing of the action was quite unusual. It was about 10:30 a.m. Friday in New York — 11:30 p.m. in Japan, where trading for the day had long ended. European markets were winding down.

U.S. President Joe Biden had indicated an acceptance of a strong dollar, saying the current state of the U.S. currency did not cause him concern, leading market players to speculate that Japan would find it difficult to intervene again in the wake of the Sept. 22 intervention.

Especially in overseas markets, it was believed that although the Japanese government and Bank of Japan could intervene unilaterally, cooperation from other central banks would be necessary to gather information from market players.

On the other hand, concern about market movements grew stronger at the Finance Ministry after the yen slipped below ¥150 to the dollar on Thursday.

“We are no longer in a situation where we can allow such fluctuations that are more excessive than ever,” Masato Kanda, vice finance minister for international affairs, told reporters on Thursday night..

At 5 p.m. Friday, trading in the Tokyo market largely ended, and the yen was sitting in the ¥150 range. But about four hours later, its value fell by more than ¥1 due to currency manipulation in the form of an intervention.

The yen eventually rose to the low ¥146 range, but weakened back to the upper ¥147 range when trading ended in the New York market on Friday.

“The yen will quickly return to a weaker position at the beginning of the week when trading picks up,” said Toru Sasaki, head of market research at JPMorgan Chase Bank.

The government and Bank of Japan spent ¥2.8382 trillion in their market intervention on Sept. 22, the largest ever for a single day. However, it took less than a month for the yen to become weaker than it was before the intervention.

In response to the recent yen depreciation, the government is apparently prepared to intervene repeatedly if the currency fluctuates excessively, with the Foreign Ministry’s Kanda saying funds for such actions are “unlimited.”