Bank of Japan Intervention Past and Present
16/09/10 08:14
The BoJ intervened in the currency market yesterday
during our live Pro Traders Club session. Under the
direction of the Minister of Finance, the BoJ appears
to have taken a slightly different approach to
intervention then the strategies used in the
2002-2004 period. Although the specifics of the
intervention are unknown to the market, wire reports
of continued but intermittent intervention in the
London and NY trading sessions. In historic calls for
intervention, approaches were more "one off"
injections. Often at times of very thin trading to
have most impact. Other approaches included frequent
short spikes during heavy volume to shake out
speculators. In the case of current JPY selling, it
is perceived that the BoJ has committed significant
capital for continuous injections to the point of
hitting emotional triggers in the market. The
challenge is that the power behind JPY buying is more
commercial than speculative, which will continue as a
sustainable force underpinning the JPY.
In other notables, the MoF confirmed that they were
also intervening in overseas markets, suggesting that
they are prepared for the long slog. Nikkei news
reported that JPY intervention totalled more than JPY
2 trillion for the day. The Fed and the US Treasury
declined to comment on Japan's currency intervention.
However, Eurogroup chair Junker said that unilateral
currency intervention was not the appropriate way to
deal with global imbalances.
Finance Minister Noda soon confirmed that Japan had intervened in the FX market, its first such move since Q1 2004. USDJPY rapidly jumped a big figure and has continued to rise amid wire reports of continued but intermittent intervention. Noda said that he could not overlook the yen's recent rise, and had asked the BoJ to intervene at 0130 GMT. He added that the intervention was a solo effort by Japan and was not internationally coordinated, but said he was communicating with overseas authorities. The Fed and the US Treasury declined to comment. The MoF also confirmed that they were also intervening in overseas markets, suggesting that they are prepared for the long slog. Estimates of total action across markets vary but it is possible that the amount down overnight is already approaching the total amount of intervention done in Q1 2003, which was over $20bln.
Although the overnight intervention should put a short term floor under USDJPY, we expect the pair to remain heavy over the medium term as the market continues to worry about the possibility of further QE by the Fed. These fears resurfaced yesterday, leading to broad dollar weakness, despite slightly stronger US retail sales data. We do not think the Fed will announce anything imminently as the data has not been weak enough to argue for further easing and some officials are pointing to fiscal stimulus as a better policy response. Despite the stronger retail sales, there were still some signs of a hesitant consumer as larger ticket items were softer. Even so, real consumer spending (including services) appears to be accelerating and UBS economists estimate that it is rising at a 2.2% annual rate so far in Q3, up from the 1.9% pace in H1. Upcoming US data releases include industrial production and capacity utilization.
We are looking to AUDUSD to begin to ease off current levels and have exited almost full scale long positions. EURUSD, AUDJPY and AUDUSD may have another leg up before pullback. Equities have modest continued upside potential, but we anticipate a move lower in the near term, dragging risk currencies lower. We have taken a short GBPJPY at 133.72 with a stop at 134.10. We don't usually trade this pair, but the trade has small risk and good potential gain if the intervention recedes. We expect JPY to continue to strengthen against USD at a modest, but forceful pace and further intervention is likely. We are hoping to see a nice pullback in AUDJPY, which stands to gain well during interventionist action. Buy AUDJPY starting 2-4 big figures lower from current levels.
Sources: Bloomberg, UBS, Chris Lori
Finance Minister Noda soon confirmed that Japan had intervened in the FX market, its first such move since Q1 2004. USDJPY rapidly jumped a big figure and has continued to rise amid wire reports of continued but intermittent intervention. Noda said that he could not overlook the yen's recent rise, and had asked the BoJ to intervene at 0130 GMT. He added that the intervention was a solo effort by Japan and was not internationally coordinated, but said he was communicating with overseas authorities. The Fed and the US Treasury declined to comment. The MoF also confirmed that they were also intervening in overseas markets, suggesting that they are prepared for the long slog. Estimates of total action across markets vary but it is possible that the amount down overnight is already approaching the total amount of intervention done in Q1 2003, which was over $20bln.
Although the overnight intervention should put a short term floor under USDJPY, we expect the pair to remain heavy over the medium term as the market continues to worry about the possibility of further QE by the Fed. These fears resurfaced yesterday, leading to broad dollar weakness, despite slightly stronger US retail sales data. We do not think the Fed will announce anything imminently as the data has not been weak enough to argue for further easing and some officials are pointing to fiscal stimulus as a better policy response. Despite the stronger retail sales, there were still some signs of a hesitant consumer as larger ticket items were softer. Even so, real consumer spending (including services) appears to be accelerating and UBS economists estimate that it is rising at a 2.2% annual rate so far in Q3, up from the 1.9% pace in H1. Upcoming US data releases include industrial production and capacity utilization.
We are looking to AUDUSD to begin to ease off current levels and have exited almost full scale long positions. EURUSD, AUDJPY and AUDUSD may have another leg up before pullback. Equities have modest continued upside potential, but we anticipate a move lower in the near term, dragging risk currencies lower. We have taken a short GBPJPY at 133.72 with a stop at 134.10. We don't usually trade this pair, but the trade has small risk and good potential gain if the intervention recedes. We expect JPY to continue to strengthen against USD at a modest, but forceful pace and further intervention is likely. We are hoping to see a nice pullback in AUDJPY, which stands to gain well during interventionist action. Buy AUDJPY starting 2-4 big figures lower from current levels.
Sources: Bloomberg, UBS, Chris Lori