Three, Maybe Four, Interventions Push Yen to 156/$
If past is prologue, impact won't last
Source: Author forecast based on Wall Street Journal data on interest rate gap Note: the MOF does not confirm interventions until the end of the month but data examined by currency traders show the most recent interventions
Over the last week, the Ministry of Finance (MOF) has intervened three—perhaps four—times in the currency market to push the yen to around 156/$. At one point, it even broke into the 155/$ range for a short while. But, as with a hand pushing a cork below the water, once the hand is removed, the cork pops back up. As I write, this yen is getting close to 157. Currency traders don’t want to fight the MOF directly, but feel (correctly) that the impact of interventions is only temporary.
The reason is simple: while the MOF falsely claims that the main reason for the yen’s depreciation is “speculation,” the reality is that the MOF is trying to defy fundamentals, as I discussed in this post a couple weeks ago.
I believe that the BOJ knows that any sharp movements will be attributed to them, being vague and non-committal will help introduce some doubt. Doubt is also why they likely intervened after a soft US CPI report, to give observers the impression that it could be algo trading or unwinding of interest rate bets. I believe that this doubt will help keep the JPY strength for abit longer than expected.