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

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

Thinks the Bank of Japan could discuss intervention at its meeting Friday Japan time. Intervention could then follow during US hours, or soon after

Barrow highlighted similarities between the setup ahead of this week’s BoJ meeting, and the central bank’s previous intervention in late 2022, said the BoJ dumped roughly $20 billion of US-dollar denominated assets on September 22, 2022, when its last intervention began.

• previous intervention occurred immediately after a BoJ meeting
• was preceded by meetings between Japanese finance ministry officials and their G-7 counterparts

Similar meetings have taken place 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.

Info comes via Dow Jones / Market Watch (gated)

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If you are curious about the mechanics of intervention and why you should be watching the MoF:

• The Ministry of Finance (MOF) in Japan 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 FX intervention.
• The MOF can decide to intervene in the FX market if it believes (in the current situation) the yen is too weak. Once the MOF decides to intervene, it gives instructions to the BOJ. The BOJ then conducts operations in the FX market by (in current circumstances) buying yen. The Foreign Exchange Fund Special Account (FEFSA), which falls under the jurisdiction of the MOF, is used for interventions. You will note that in the current situation, where the BOJ would buy yen, they will dip into USD reserves to fund the other side of the trade, buying USD (or other currencies if needed).
• The BOJ’s operations are usually conducted through commercial banks that deal in the foreign exchange market. They may be spot transactions, or forward transactions that are set to occur at a future date. Note that while the MOF has the ultimate authority to decide when to intervene, it does so in close consultation with the BOJ. The BOJ provides expertise and advice on monetary and financial market conditions, which can influence the MOF’s decision. This collaboration reflects the balance between the roles of the two entities: the MOF as the government’s chief financial and economic advisor, and the BOJ as the country’s central bank that maintains stability in the financial system.

I posted earlier today:

• BOA predicts USD/JPY surge to 160 as BoJ stands helpless

This article was written by Eamonn Sheridan at www.forexlive.com.