Analysis: Will they or won’t they? Japan uses guessing game to shore up yen

  • Govt refuses to confirm intervention except for September 22 raid
  • Stealth intervention likely to become Japan’s new norm – sources
  • MOF refuses to comment on whether it will intervene on Monday
  • Stealth action is better than nothing but only buys time – analyst

TOKYO, Oct. 24 (Reuters) – Japanese authorities are relying heavily on psychological tactics to combat yen bears, which means markets must keep guessing about their currency intervention rather than overt attempts to push the currency’s decline to multi-decade lows. decades to stop.

The battered yen has taken a hit in recent weeks, which analysts and traders attribute to the government’s efforts to support the currency against a relentlessly strong dollar amid concerns about the negative economic impact of sharp declines in the yen .

Although the Ministry of Finance (MOF) confirmed its foray into the foreign exchange market on Sept. 22, it has since declined to comment on other suspected interventions, including a sharp rise in the Japanese currency on Friday.

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Similarly, top Japanese currency diplomat Masato Kanda declined to comment Monday, as the yen rose to 145.70 against the dollar from around 149.70 in early Asian trading in another suspected yen buying intervention.

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Analysts say the “stay mom” strategy keeps investors guessing at intervention, discouraging speculators from testing the yen’s new lows.

This contrasts with Japan’s intervention after the 2011 earthquake and tsunami to quell the yen’s sharp rises, with authorities announcing most of the interventions.

“With stealth intervention, authorities can give the impression to the markets that they could intervene more often than they actually have,” said Atsushi Takeda, chief economist at the Itochu Research Institute. “It’s a psychological tool that can limit the frequency of actual intervention.”

Unlike 2011, the more recent government interventions require the sale of dollars — not the yen — which is more difficult because it taps into Japan’s limited foreign reserves.

Although its $1.3 trillion in foreign reserves is the second largest in the world, Japan’s September 22 action alone used up nearly 15% of the funds immediately available for intervention, making regular actions expensive and unsustainable. .

During the Asian financial crisis of 1997-1998, the last major series of yen-buying interventions by the government, in most cases the Japanese authorities did not disclose whether they had intervened.

That means Tokyo will have to rely more on its words – or its silence – than on reserves to prop up the yen.

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Kanda told Reuters on Saturday that the MOF, which oversees exchange rate policy, is sticking to its position for now not to comment on whether it will intervene.

“The MOF will likely maintain its stealth approach when it intervenes,” said a government official familiar with the matter. “It’s hard to see why it would suddenly want to announce that it has intervened,” the official said, a view echoed by another official.

Finance Minister Shunichi Suzuki stuck to his script when approached by reporters on Monday, saying only that Japan will take “necessary” action against speculative movements of the yen.

WAR OF NERVES

Knowing that solo intervention alone cannot reverse the dollar’s broad uptrend, government officials have said any action in the foreign exchange market will be aimed at slowing the yen’s sharp declines rather than defending a certain level.

The likely MOF intervention on Friday came as the yen plunged to a new 32-year low of 151.94 for the dollar.

By then, markets were abuzz with speculation that Tokyo had intervened, including on October 13, when the Japanese currency jumped a full yen immediately after hitting a then 32-year low of 147,665 for the dollar. Another case was on October 20, when the dollar fell 46 pips immediately after rising above 150 yen.

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Prime Minister Fumio Kishida faces public heat from rising inflation and must show that he is taking action to slow the currency’s fall, which has pushed import costs soaring.

Engaging in a nerve war with speculators is one of the few options left to policymakers, especially now that the central bank has no intention of raising interest rates.

Investors will know how much the recent interventions have cost on October 31, when the MOF is expected to release monthly data.

“The idea with stealth intervention is to keep markets sharp, so it’s important to be savvy and not allow traders to read your pattern,” said Tsuyoshi Ueno, senior economist at NLI Research Institute.

“Given the recent surge in US Treasury yields, the rate of the yen’s decline has been moderate. You could argue that stealth intervention is better than nothing, although it’s really just buying time.”

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Reporting by Leika Kihara and Tetsushi Kajimoto; Additional reporting by Yoshifumi Takemoto and Daniel Leussink; Editing by Sam Holmes

Our Standards: The Thomson Reuters Trust Principles.

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