BOJ Data Hints at Possible Yen-Buying Intervention as Currency Plunges: Nikkei Asia

Data released by the Bank of Japan (BOJ) on Tuesday suggests that the Japanese government may have intervened in the currency market to support the plummeting yen, Nikkei Asia reports. The yen saw a dramatic turnaround against the US dollar on Monday after falling close to 12% since the beginning of the year.

"The BOJ estimates there will be a drain of 7.56 trillion yen ($48.2 billion) in liquidity from the financial system on May 1 due to transactions with the government sector," notes Nikkei Asia. "Financial transactions are typically settled in two days, so the amount reflects transactions that took place on Monday."

This significant discrepancy from the anticipated liquidity drain of around 2 trillion yen suggests unanticipated transactions, potentially indicating currency market intervention.

"There is a high possibility that currency market intervention did take place on Monday," Yosuke Takahama, chief manager at money broker Central Tanshi, told Nikkei Asia.

The yen's sudden rebound from a 34-year low of 160 to the dollar on Monday afternoon supports the speculation of intervention. Traders observed massive buy orders driving up the yen, leading to a 3.7% gain against the greenback.

While Japan's Ministry of Finance has not confirmed any intervention, Vice Finance Minister Masato Kanda expressed concerns over the yen's sharp decline, stating, "The amount of harm caused by sharp swings in the exchange rates as a result of speculative activity is now beyond our tolerance."

Market players are closely observing the government's actions and tolerance levels for the yen's depreciation. The weak yen has both positive and negative effects on the economy, making imports more expensive and worsening inflation while simultaneously boosting the tourism industry and foreign investment.

The effectiveness of the potential intervention remains a subject of debate among analysts. Some believe it provided the BOJ with some breathing room to address the weak yen and implement policy normalization, while others question its long-term impact and call for more decisive action.

The Ministry of Finance is expected to disclose the amount of any intervention for the period between April 26 and May 29 on May 31, with daily records published quarterly. However, the ministry typically maintains secrecy around its interventions to keep speculators off balance and maximize the impact of its limited foreign exchange reserves.