Bullet loaded? The Japanese authorities may be ready to intervene further!

Golden Ten New Media

2024-05-10 11:47Published in Guangdong

The Japanese authorities are preparing for further intervention, and the critical level still needs to be watched at this threshold.

The latest data from various Fed accounts hinted that the Japanese authorities were funding further intervention in the currency market to boost the struggling yen.

Data as of May 8 showed that central bank holdings of U.S. securities fell by about $10.6 billion, bringing total holdings to $2.95 trillion. Meanwhile, according to the latest data from the Federal Reserve, the balance of funds deposited by global central banks in the Fed's reverse repo agreement (RRP) facility reached $362 billion, up from $360 billion a week ago.

The data covers the time when the Japanese authorities may intervene in the currency market to support the yen, which rebounded sharply on April 29, a holiday in Japan, when the yen fell to a new 34-year low of 160.17 yen against the dollar. Three days later, the Fed concluded its two-day policy meeting, and the yen suddenly rose more than 3% in the final hours of the day's U.S. session.

Another data released last week showed that the balance of another cash account used by BOJ officials fell by $17.8 billion, suggesting that the funds may be used to prop up the yen at some point.

However, according to Wrightson ICAP, historically, the Japanese authorities have not deposited the "ammunition" for intervention in the Fed's interest-free foreign official deposit category. This suggests that some of the recent data on foreign central banks reducing their holdings of US Treasuries may have been reduced by the Bank of Japan to support the yen.

Japan's Ministry of Finance did not confirm that the authorities had intervened, but foreign media analysis of the Bank of Japan's accounts showed that the intervention did occur. These estimates suggest that policymakers may have spent about 9 trillion yen last week to boost the yen, an amount comparable to previous interventions implemented in the fall of 2022.

According to the latest data from Japan's Ministry of Finance, Japan's foreign exchange reserves were worth about $1.14 trillion at the end of April, a decrease of $14.2 billion from the previous month, due to a decrease of about $17 billion in the value of its foreign securities to $978 billion.

David Lebovitz, global market strategist at JPMorgan Chase & Co., said that if the yen continues to slide against the dollar, it could lead to instability in Japanese inflation expectations. "The market is suggesting that 160 could be a key level and the authorities do not want to see the yen weaken above that level," he said. I think by the time you get to 160, you'll listen to more voices about the possibility of intervention. ”

Levovitz said a weaker yen is contributing to inflation in the Japanese economy. However, while Japan's consumer price growth is driven by the depreciation of the yen, if the yen continues to depreciate, it will "do more harm than good". "The rate hikes we saw earlier this year were more of a cue to the interest rate cap than a step towards a significant tightening of monetary policy."

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