- The yen weakened to its lowest level in 32 years at the time of the alleged intervention
- Japan used a ‘stealth’ approach to intervene in October
- Data seeks clues about Japan’s willingness to spend in foreign currency
TOKYO, Oct 31 (Reuters) – Japan spent a record $42.8 billion on currency interventions in October to prop up the yen, the finance ministry said, as investors wanted to know how much authorities might intervene more to mitigate the sharp drop in the yen. .
The 6.3499 trillion yen ($42.8 billion) was broadly in line with estimates from Tokyo money market brokers who believed Japan had likely spent up to 6.4 trillion yen on two consecutive trading days. unexpected interventions.
A sharp drop in the yen to a 32-year low of 151.94 to the dollar on October 21 likely triggered the intervention, followed by another on October 24.
However, the amount was nearly double the 2.8 trillion yen Tokyo spent last month in its first yen-buying and dollar-selling intervention in more than two decades. The last intervention files were recorded from September 29 to October 27.
The interventions helped trigger an immediate drop in the dollar of more than 7 yen on October 21, and another drop in the dollar against the yen of around 5 yen on October 24, albeit temporarily.
The Japanese currency has since come under further pressure.
“Big intervention spending has proven effective to some degree,” said Daisaku Ueno, chief FX strategist at Mitsubishi UFJ Morgan Stanley Securities. “Japan’s way of entering the market was a little indecent as they were apparently targeting the thin trade seen late Friday night and early Monday morning.”
“This suggests that Japanese authorities will continue to attack market participants who sell the yen above 150 yen.”
OUTSTANDING DATA FOR US RATE HIKES
With strong consumer spending data in the United States, drawing attention to persistent inflation and dampening expectations of a slowdown in interest rate hikes by the Federal Reserve, while the Bank of Japan remains Tethered to ultra-low interest rates, the dollar rose again late Monday, up 1% to 148.45 yen.
Data on Japan’s monetary interventions, including monthly totals released towards the end of each month and daily spending released in quarterly reports, are being watched closely for clues as to how much Japan might be willing to spend in its forays. in the currency market.
Monday’s figures will come under closer scrutiny after the Finance Ministry refrained from commenting on its apparent actions in the market this month, taking a stealth approach to intervention. He confirmed last month’s yen buying action immediately after it occurred.
But while the markets are keen to examine how much Japan is prepared to commit to intervention, there is no doubt that – at least for the foreseeable future – it has sufficient resources to continue entering the market.
Indeed, Japan’s top monetary diplomat, Masato Kanda, said there was no limit to the authorities’ resources to carry out an intervention.
Japan held about $1.2 trillion in foreign exchange reserves at the end of September, the second largest after China, of which about a tenth is held in deposits with foreign central banks and the Bank of China. international settlements and can be easily exploited for the sale of dollars. , yen buying intervention.
Additionally, four-fifths of Japan’s total foreign exchange reserves are held in the form of US Treasuries, purchased during episodes of dollar buying intervention as the yen rose. These can easily be converted into cash.
Other assets include gold, International Monetary Fund (IMF) reserves and IMF Special Drawing Rights (SDRs), although obtaining dollar funds from these assets takes time, officials say. of the ministry.
($1 = 148.4900 yen)
Reporting by Tetsushi Kajimoto; Editing by Edmund Klamann
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