In a bid to get the most out of its unilateral action, Bloomberg Japan seems to be using a new currency intervention playbook compared to a decade ago.
Most of its intervention, confirmed and suspected, took place outside regular Japan trading hours, with the exception of probable action Monday -- unlike moves in 2010 and 2011 to weaken the yen. The government only stated once that it intervened, with the reluctance to do so seen as an additional tool to deter speculators.
The shift in strategy concentrating its efforts on overseas funds makes sense considering most of the yen's weakness this year has occurred outside of Japanese trading hours. More than four-fifths of the currency's 23% slump against the dollar has occurred in offshore markets, according to data compiled by Bloomberg.
Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ Kokusai Asset Management Co. in Tokyo, said that strategy mirrors that seen during traditional coordinated intervention with overseas peers, even though this time the action is taken unilaterally. He said that this may increase its influence on markets.
Japan can show that it has got approval from local authorities when conducting an intervention overseas, said the 34-year market veteran. It has a meaningful impact and it is a coordinated intervention. Finance Minister Shunichi Suzuki said earlier this month that policy makers had made efforts to gain understanding for Japan's actions from the US and other nations, but there is no indication that it is close to an agreement on measures to rein in the dollar's strength.
There was a second intervention in two sessions that the yen saw in Tokyo trading Monday. It was trading at 149.36 per dollar in early morning in New York. Suzuki didn't say anything about it and avoided explaining why he isn't doing so. It is a huge change from the official approach taken in 2010 -- 2011 when the government usually announces their action immediately after entering the market.
Koji Fukaya, a fellow at Market Risk Advisory in Tokyo, said the lack of confirmation is acting as a smoke screen. It is hard to take positions when there is no clue to when an intervention will take place or whether it has happened at all. Japan spent more than $30 billion last week to support the currency, according to estimates by traders. The yield gap between the US and the Bank of Japan is set to continue as the yawning yield gap looks set to continue to weigh on the yen, with the Bank of Japan expected to stick to its accommodative policy this week. Analysts said officials were likely to focus on the speed of declines rather than any particular level before intervening.
While intervention is unsustainable, we think the MOF would prefer a dollar-yen below 150, even if they have not explicitly stated so, Mazen Issa, senior strategist at TD Securities, wrote in a note.
Strategies to avoid workplace conflict with return to office are not included in this article.