Speculation Grows on BOJ Foreign Exchange Market Intervention: "44 Trillion Won Over Two Days"

Estimated 2 Trillion Yen Bought on the 12th Alone
Japanese Authorities Refuse to Comment on Intervention

Last week, the yen-dollar exchange rate dropped by about 4 yen, sparking speculation that the Bank of Japan (BOJ) intervened in the foreign exchange market, according to a report by Nihon Keizai Shimbun (Nikkei) on the 16th.

According to the report, the market believes that the Japanese foreign exchange authorities conducted yen purchases worth approximately 2 trillion yen. In the BOJ's current account balance forecast released that day, the decrease due to "fiscal and other factors" reflecting exchange rate intervention was 2.74 trillion yen, creating a difference of about 2 trillion yen compared to market estimates that did not assume intervention. Experts also estimate that there was intervention worth 3 to 4 trillion yen on the 11th.

[Image source=Reuters Yonhap News]

Exchange rate intervention is decided by the Japanese Ministry of Finance and executed by the BOJ. When the yen's value in the foreign exchange market falls sharply beyond a certain level, the BOJ buys yen and sells dollars to support the yen's value. When yen purchases occur, yen moves from the current deposits held by private financial institutions at the BOJ to the treasury, reducing the current deposits. Settlement usually takes place two business days later, so the intervention on the 12th is reflected in the balance on the 17th.

As U.S. Treasury yields soared amid former President Trump's chances of re-election, the yen continued to weaken. Earlier this month, the yen broke through 161.7 yen per dollar, marking its lowest level in over 37 years. Then, immediately after the release of the U.S. June CPI on the 11th, the yen appreciated to the low 157 yen per dollar range, raising suspicions of market intervention by Japanese foreign exchange authorities.

At that time, Masato Kanda, Financial Bureau Director of the Japanese Ministry of Finance, told reporters, "We have no position to comment on whether there was intervention," adding only, "We will announce it at the end of the month." In response, Yusuke Miyairi, Nomura International's currency strategist, evaluated that Kanda's explanation to reporters late in the evening was significant. Previously, Japanese authorities conducted market intervention worth about 9.7885 trillion yen (approximately 85.5 trillion won) over about a month from April 26 to May 29.