BOJ’s reported currency rate check

The Bank of Japan has conducted a rate check in apparent preparation for currency intervention, the Nikkei newspaper reported on Wednesday, as policymakers stepped up warnings about sharp falls in the yen.

The yen rose slightly from a near 24-year low against the dollar after the report, which cited unidentified sources, and was trading around 143.89 at 0520 GMT.

MASAYUKI KICHIKAWA, CHIEF MACRO STRATEGIST, SUMITOMO MITSUI DS ASSET MANAGEMENT, TOKYO:
“The central bank probably considers recent moves in the yen rate as too sudden and too large.”

“If the market continues to sell the yen, there is more pressure for the MOF and BOJ to communicate to the market that the recent move has been too fast.”

“Without consent from the U.S. side, I don’t think Japan would intervene. I don’t think U.S. authorities would intervene with Japan, but I do think that the Japanese side has talked to their U.S. counterparts, and the U.S. side is not opposed to intervention by the Japanese authorities.”

“Of course in the short term intervention could work, if the sense (is) that the market is skewed to selling yen, but in order to change the trend, we need to see a change in fundamentals.”

CHRISTOPHER WONG, CURRENCY STRATEGIST, OCBC, SINGAPORE
“Verbal jawboning may help to slow the pace of yen depreciation but is not likely to alter the trend unless USD and UST yields decisively turn lower or BoJ changes or tweaks its policy.”

“The effectiveness of the intervention would be maximised if it’s a coordinated effort and if the USD uptrend is not so strong.”

MASAMICHI ADACHI, CHIEF ECONOMIST, UBS SECURITIES, TOKYO
On possibility of BOJ action, “No. Simple answer is no.

“What Kuroda mentioned in the past is that the weaker yen is not bad for the economy. And what he always emphasised — actually, that’s the same as the Ministry of Finance — saying that they are not commenting on the level, they’re commenting on the speed of the depreciation. And the pace of the yen depreciation or a strong US dollar is probably speculative, that’s what they’ve all mentioned.

“So the Deputy Minister of Finance, who is in charge of the currency policy, is … stating that he’ll (take) necessary measures, meaning intervention. So I think if the yen goes to depreciate (further) again, (over) next two weeks, I think I’m not going to be surprised if the Ministry of Finance intervenes in the market, meaning buying the yen and selling the US dollar held in foreign reserves.”

KOYA MIYAMAE, SENIOR ECONOMIST, SMBC NIKKO SECURITIES, TOKYO
“Government officials have said they look at the magnitude of currency moves, rather than the level of exchange rates, and the (recent) big move likely prompted the reaction.”

“A solo intervention can only impact the market near-term. It’s not that it has no impact, but without a coordinated action, the effect doesn’t last long.”

MASAFUMI YAMAMOTO, CHIEF CURRENCY STRATEGIST, MIZUHO SECURITIES, TOKYO
“(If dollar/yen rises above 145) intervention may become more likely. It’s unlikely …. intervention will have a desirable effect so I think it’s better not to do it. The United States is expected to cut interest rates next year so it’s just a matter of waiting until that time. If the United States moves to cutting interest rates, the yen will strengthen even without the Bank of Japan doing anything.”

“Currently, the dollar is becoming stronger and the yen weakening due to the big interest rate differentials between the United States and Japan, so it’s hard (for intervention) to be effective. That’s why I think it’s better to wait.”

“If the dollar rises above 145 yen, the possibility of intervention will rise to about 60% from 10% to 20% before, rather than becoming 100%.”

ROB CARNELL, HEAD OF RESEARCH, ASIA-PACIFIC, ING, SINGAPORE:
On possibility of BOJ intervention, “Never say never. They have been stepping up the rhetoric lately. But I would be cautious about the inevitability of their intervening. Japan is a signatory to the G20 and they have got policies about not intervening.”

“It is also difficult… unless they stop buying JGBs, unless they raise their cash rate, it just doesn’t seem credible for them to be going to the G20 to say the yen is too weak. And intervening might at best win them a couple of hours of respite before the market does what it wants to again.”

TAKESHI MINAMI, CHIEF ECONOMIST, NORINCHUKIN RESEARCH INSTITUTE, TOKYO:
“It’s not clear whether the MOF will actually intervene in the currency market. But by conducting rate checks, it’s signalling readiness to step in to keep sharp yen moves in check.”

“My feeling is that the MOF won’t intervene at this stage and leave it at verbal warnings. There’s still a week before the Fed’s rate-setting meeting. I don’t think markets believe the MOF will intervene at current dollar/yen levels.”