Yen speculators bow to stealth strategy
Central bank’s forex interventions seem to be working
TOKYO: Japan is enjoying some success in its battle with speculators targeting the enfeebled yen and the central bank’s stubborn grip on yields, but more tests lie ahead.
After months of jawboning turned into concrete action in the foreign-exchange (forex) market, speculative positioning has been pegged back at least in the currency space.
Together with a favourable reduction in demand for the greenback, that has kept the yen well away from the key 150 per dollar mark in recent weeks, though US inflation data is an imminent threat.
“Japan’s authorities aren’t likely letting their guard down, but it’s looking increasingly likely that they’ve persevered and pulled themselves out of the woods,” said Jun Kato, chief market analyst at Shinkin Asset Management in Tokyo.
“They’ve also gotten lucky with the external environment, which seems to be changing.”
Unannounced currency intervention, ramped-up bond buying and an extra budget have helped Japan show financial markets that it is standing its ground on stimulus, even as the rest of the world tightens policy.
But investors are well aware it stands alone, especially in the currency market, where peers like the US have refused to explicitly endorse its intervention policy.
Market reaction to the US consumer price figures will provide further evidence that Japan has played its cards relatively well, or reveal that the recent calm was merely a prelude to a fresh storm.
A stronger-than-expected result could drive yen weakness, leading traders to price in even
more US rate hikes, while a softer reading may have the opposite effect.
“If the consumer price index continues to be very strong, the dollar may rise again but it’s hard to see the US economy enduring rate hikes up to 5.25%,” said Kato.
“The probability is rising that the recent dollar-yen high of 151.95 may be seen in retrospect as the peak.”
The yen has held on to a large chunk of its gains following Japan’s record Us$43bil (Rm203bil) spend last month when the currency looked like breaching 152.
Since then, it has weathered both another dovish decision by the Bank of Japan (BOJ) and a further outsized rate hike by the Federal Reserve (Fed), events speculators had previously jumped on as an excuse to sell the currency. It traded around the 146.40 level yesterday.
“If you ask me whether Japan has had some success with its forex interventions, I’d say
yes,” said Hideo Kumano, executive economist at Dai-ichi Life Research Institute.
“The interventions on Oct 21 and 24 went well in that the authorities moved early because they knew the impact would be weaker if they waited until the Fed meeting.”
By staying silent on whether they have entered markets since their first intervention in September, Japanese authorities have kept traders partly in the dark over their plans.
Apparent action has also taken place outside Tokyo hours to show foreign traders they do not have a free rein to attack.