G-7 Start Coordinated Intervention On The Yen
Yesterday, the G-7 had a conference call and have approved the Bank of Japan (BOJ) to conduct interventions in the Forex Market to weaken the Yen. The G-7 also said they will intervene to help weaken the Yen to help the BOJ. We believe the BOJ may be drawing its line in the sand in the 80.80/81.00 area. We are receiving reports from other traders saying one of the big Tokyo City banks was a sizable 80.80 bid on the recent dip. The BOJ is probably out-sourcing some of the intervention to local banks. There is a rumor in the market that Japan has asked the country’s large exporters to deal with the BOJ directly. If that rumor is true, it would be a very good move by the BOJ. If the order flow were to leave the interbank market, the big banks would essentially be flying blind. They would not be able to use customer orders as natural stop-losses. It would also allow the BOJ to gauge the actual corporate flows from the speculative flows. For the moment, model funds and US custody banks are heavy USD/JPY sellers. Bids are expected toward 81.00; stops are below. Stops have been building below 81.00 from intraday longs. Long-term model funds were heavy USD/JPY sellers this morning. We also got confirmation that the US Federal Reserve intervened in the USD/JPY earlier today when USD/JPY topped out around the 81.75 area. The market quickly dropped back to the 81.25 area and has now stabilized around 81.00. Nomura estimates European Central Bank (ECB) bought around 5 yards of EUR/JPY overnight. We are also hearing that the Bank of Canada (BOC) has been selling yen via CAD/JPY. BOC says the size of yen intervention will be disclosed in monthly foreign reserves report in early April.
The last time the G-7 conducted coordinated intervention in the Forex Market was back in 2000 when the Euro was at .85. It will be interesting to see how successful this coordinated intervention on the Yen will be. It certainly has higher odds of success then it would if the the BOJ intervened single handily. We just have to look at the Swiss National Bank (SNB) and the Swiss Franc to see how unsuccessful intervention can be if it is not coordinated.