Q+A-Will Japan intervene again on forex?

TOKYO, Oct 26 (BestGrowthStock) – The dollar has fallen within
spitting distance of its postwar record low against the yen and
market players say Japanese authorities may intervene again if it
falls sharply, after they did so in September.

A G20 pledge to avoid competitive currency devaluations has
muddied the waters for Tokyo but policy-makers have since
repeated said they will take decisive steps in the forex market (Read more about the difference between the forex market and the stock market. )
when needed and that their stance on intervention is unchanged.

But there is a growing impression among some traders that
with a debate globally about competitive currency devaluation and
Japan’s recent criticism of South Korea for intervention, Tokyo
may not intervene again, even though it says it might.

The dollar has lost about 4 percent against the yen since the
end of August and 13 percent so far this year, despite 2.1
trillion yen or $25 billion worth of intervention last month,
with the U.S. currency sold across the board after the Federal
Reserve signalled it was ready to ease policy again.

The dollar dipped to its lowest in 15 years this week, to
80.41 yen (JPY=: ). The market is jittery about the possibility
that Japan will intervene as the U.S. currency grinds down
towards its 1995 postwar low of 79.75 yen.


Q+A on Japan’s intervention capacity [ID:nTOE68S07S]

Q+A on unsterilised intervention [ID:nTOE68G02P]

Graphic on trade weighted fx: http://r.reuters.com/qun86p

Currency tensions map: http://r.reuters.com/jec96p

For a PDF on the G20’s uneasy truce on currencies

and trade imbalances: http://r.reuters.com/nan99p


Here are some questions and answers about Japan’s possible


The Bank of Japan acts on behalf of the Ministry of Finance
in forex intervention, and those who think it might step in say
it could do so if there was a rapid rise in the yen specifically,
rather than a general drop in the dollar, and it was accompanied
by a sharp drop in the Nikkei (.N225: ) share average.

If yen crosses such as the euro/yen and Australian dollar/yen
rates remain stable intervention is seen as less likely. But
general yen strength could change the equation, especially if it
is being driven by a buildup of speculative positions.

One catalyst could be a fall in the dollar below the record
low, which could draw more cries of pain from exporters.

Some traders say a sharp fall in Japanese share prices could
also alarm the authorities and prompt intervention. If the Nikkei
falls below a 16-month low near 8,800 hit in early September, the
Japanese government may feel more pressed to act.


The debate makes intervention more difficult, at a time when
China is under pressure to allow more rapid appreciation of the

G20 finance ministers agreed at the weekend to shun
competitive currency devaluations and some players think this has
made intervention even harder for Japan. [ID:nTOE69M01E]

Tokyo has escaped overt criticism from Washington for its
Sept. 15 intervention, the only confirmed bout so far. But euro
group Chairman Jean-Claude Juncker was openly critical and a G7
source said Japan got heavy criticism from the Europeans behind
the scenes at a G7 meeting in early October, making it very
difficult for Tokyo to justify intervening again.

To be sure, Finance Minister Yoshihiko Noda repeated even
after the G20 meeting that Japan will take decisive action if
warranted. [ID:nTOE69O09F]

And some traders suspect that Japan could point to a section
of the G20 communique calling for vigilance against disorderly
moves in currencies to justify intervention.

But many traders feel that the tone of Japanese
policy-makers’ comments changed after the October IMF and G7
meetings in Washington. Finance Minister Yoshihiko Noda was at
pains to stress that intervention was aimed at stopping excessive
moves from hurting the economy, rather than the start of a big,
long campaign aimed at targeting a specific foreign exchange

Noda then criticised South Korea for intervening to keep down
its currency, saying Seoul’s leadership of the G20 would come
under question due to its regular intervention, a barb some
analysts took to mean: “If we can’t do it, then neither can you.”

Criticising South Korea made Noda sound less likely to be
considering immediate intervention.


That’s hard to fathom because of the politics involved and
because the only confirmed intervention in the past six years is
the Sept. 15 action, so the market does not have a lot to go on.

Levels the market thought might be “lines drawn in the sand”
have been and gone, with the next potential one at 80 yen.

While at first some thought Sept. 15 marked the start of a
longer campaign, now it may be that the authorities will keep the
action confined to a few occasions when the opportunity presents
itself to counter rapid yen moves and remind the market of the
two-way risk.

In the meantime, policy-makers are keeping up a steady stream
of verbal reminders that they will act decisively when needed.


If no intervention occurs and the yen strengthens through 80
per dollar and then 79.75, some see it moving up to 78-76 yen per
dollar to start with. Daisuke Uno, chief strategist at Sumitomo
Mitsui Banking Corp, told Reuters in September that his personal
forecast was for the yen to reach 50 next year.

A Reuters poll in early October showed a median forecast of
88 yen per dollar in six months’ time and 92 yen in a year.

A fall in the dollar below 80 yen would likely turn that
level into resistance which the greenback could struggle to

In the options market, implied volatilities are subdued,
suggesting option market players expect the yen’s rise to be
slow, with one-month volatility around 11.7 percent.

The yen’s advance is likely to be slowed by various option
barriers, which are said to be lined up at 79-80 yen.

But a trader at a Japanese bank also noted buying in
longer-dated dollar puts/yen calls, such as six months and nine
months, with strike prices far below the record low of 79.75 yen,
suggesting expectations of a deeper fall in the dollar.
(Reporting by Masayuki Kitano, Hideyuki Sano, Leika Kihara and
Charlotte Cooper; Editing by Edmund Klamann and Michael Watson)

Q+A-Will Japan intervene again on forex?