Japan’s suspected intervention estimated at record US$37 billion
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JAPAN likely conducted its biggest ever currency intervention to prop up the yen late on Friday (Oct 21), based on Bank of Japan (BOJ) balance of payment figures and an estimate of flows by money broker Central Tanshi.
The size of the suspected market action is estimated to be as much as 5.5 trillion yen (S$52 billion), according to a basic calculation using the BOJ’s forecast for the change in its current account and the Central Tanshi projection for the balance assuming no intervention.
The estimate offers a ballpark figure for the amount Japan likely spent to support the embattled currency. The Central Tanshi projection of the balance factors in flows such as transactions on bonds and treasury bills.
Still, it remains unclear if yen buying after midnight on Friday is reflected in Monday’s data. Other unforeseen movements of money between the government and the central bank could also account for the discrepancy between the Central Tanshi forecast and the BOJ figures.
Japan’s top finance ministry officials have declined to confirm whether they stepped into markets last week or earlier Monday, as they shifted strategy after the currency continued its sharp slide despite last month’s first intervention to support the yen since 1998.
They announced the first intervention right away.
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“We have a system in place to monitor the market 24 hours a day, 365 days a year, truly 24/7, any time, any place and to carry out the necessary response,” against speculative trading, Masato Kanda, the top currency finance ministry official told reporters on Monday. “High volatility creates a serious problem for the Japanese economy, companies and households.”
Yosuke Takahama, chief manager at Central Tanshi, projected the BOJ figures to include an increase of 4.3 trillion yen from the government without the intervention. The BOJ figures released on Monday evening showed a fall of 1.2 trillion yen. The missing 5.5 trillion yen is thought to offer a rough estimate of the intervention amount.
A similar calculation used by local media in September put the intervention that month at between 2.9 trillion yen and 3.6 trillion yen. Official intervention figures released at the end of the month showed the government used 2.8 trillion yen.
Economists have been reluctant to put a precise figure on the likely intervention last week, but many said it was likely bigger than last month’s. Japan likely spent more than US$30 billion last week to support the yen, the Financial Times reported earlier, citing estimates by traders.
Nobuyasu Atago, chief economist at Ichiyoshi Securities and a former BOJ official, said his impression was the government spent more than 4 trillion yen on late last Friday to support the yen and about 2 trillion yen this morning again to boost the yen.
The ministry will disclose its total amount of currency intervention for October at the end of this month. More specific details on daily intervention and the currency pairs involved will be announced for this quarter is usually announced in February. BLOOMBERG
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