Possible Bank of Japan intervention in the yen on Friday: USD/JPY on the radar

April 25, 2024 Vaseline stjohnson 0

Stever Barrow, head of G-10 strategy at Standard Bank, says the Bank of Japan could step in to sell; USD/JPY on Friday.

He thinks the Bank of Japan could discuss intervention at its meeting on Friday Japan time. The intervention could then follow during US time, or shortly after.

Barrow highlighted similarities between the BoJ’s pre-meeting setup this week and the central bank’s previous intervention in late 2022, saying the BoJ offloaded roughly $20 billion in US dollar-denominated assets on the 22nd. September 2022, when his last intervention began.

  • The previous intervention came immediately after a BoJ meeting.
  • was preceded by meetings between Japanese Finance Ministry officials and their G-7 counterparts

Similar meetings have been held recently, including a meeting between G-7 finance ministers last week, as well as a meeting between Japanese and Korean officials with Treasury Secretary Janet Yellen.

The information comes through Dow Jones / Market Watch (private)

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If you are curious about the mechanics of the intervention and why you should keep an eye on the Ministry of Finance:

  • Japan’s Ministry of Finance (MOF) is responsible for formulating foreign exchange policy in the country, while the Bank of Japan (BOJ) is responsible for executing such policies, particularly in terms of foreign exchange intervention.
  • The Ministry of Finance may decide to intervene in the currency market if it believes (in the current situation) that the yen is too weak. Once the Ministry of Finance decides to intervene, it gives instructions to the Bank of Japan. The BOJ then conducts operations in the foreign exchange market by purchasing (under current circumstances) yen. For the interventions, the Foreign Exchange Fund Special Account (FEFSA) is used, which is under the jurisdiction of the Ministry of Finance. You will notice that in the current situation, where the BOJ would buy yen, it will tap into dollar reserves to finance the other side of the trade, buying dollars (or other currencies if necessary).
  • The BOJ’s operations are generally carried out through commercial banks that operate in the foreign exchange market. They can be spot transactions or forward transactions that will occur at a future date. Please note that while the Ministry of Finance has the ultimate authority to decide when to intervene, it does so in close consultation with the Bank of Japan. The BOJ provides expertise and advice on monetary and financial market conditions, which may influence the decision of the Ministry of Finance. This collaboration reflects the balance between the functions of the two entities: the Ministry of Finance as the government’s main financial and economic advisor, and the Bank of Japan as the country’s central bank that maintains the stability of the financial system.

I posted earlier today: