Exclusive-Japan shifts to ambush intervention tactics against yen short sellers, sources say
By Makiko Yamazaki, Tamiyuki Kihara and Leika Kihara
TOKYO, July 2 (Reuters) – Japanese officials are abandoning their habit of telegraphing intervention risks, instead signalling a more targeted campaign to squeeze speculators and raise the cost of betting against the battered yen, two sources familiar with the matter said.
Departing from the calibrated jawboning that preceded previous bouts of intervention, the Ministry of Finance (MOF) could step in abruptly to wipe out speculative yen positions, the sources said. Officials are also avoiding any suggestion of a specific “line in the sand” exchange-rate level that would trigger action.
The shift reflects a more aggressive approach by the MOF, which is using silence as a policy tool to keep traders guessing. That raises the risk of a surprise intervention driven by an accumulation of speculative short-yen bets rather than by the currency crossing a publicly understood threshold, the sources said.
The MOF’s approach and the Bank of Japan’s continued hawkish rhetoric signal a coordinated effort to keep yen bears at bay, two other sources said.
The sources all spoke on condition of anonymity due to the sensitivity of the matter.
Even after hiking rates last month, the BOJ has been ramping up warnings over the inflationary impact of a weak yen as the currency continued its slide towards four-decade lows.
YEN SPECULATORS ON NOTICE
“Currency moves are among key factors affecting Japan’s economy and inflation,” BOJ Deputy Governor Ryozo Himino said in June, adding that rising import costs from a weak yen may boost underlying inflation – a warning echoed by other board members.
Japan spent a record 11.7 trillion yen ($72 billion) intervening in foreign exchange markets between late April and early May.
But the brief boost to the yen was quickly wiped out as the currency resumed its downtrend last month. It slumped to a 40-year low of 162.66 per dollar on Tuesday and was fetching 162.50 in midday trading in Tokyo on Thursday.
The foray into the currency market was well-telegraphed in advance by MOF officials, giving traders a chance to avoid incurring losses by unwinding yen short positions.
Any future intervention would eliminate such opportunities, heightening market uncertainty and increasing the risks of shorting the yen. This suggests authorities see clear advantages in maintaining a low profile.
“The timing of intervention is difficult. The purpose would be to hit speculators hard so if needed, authorities will step in,” said one of the sources, a view echoed by another source.
