Japan Intervened to Support Yen for First Time Since 1998 After BOJ Decision

Japan’s ministry of finance stepped into the foreign exchange market Thursday, officially for the first time since 1998 to support the yen. The US Treasury acknowledges FX intervention by the BoJ. The currency extended losses to fresh 24-year lows to145.89, as the spread between monetary policy in Japan and the United States widened further. On Wednesday the Federal Reserve raised rates 75bp whilst The Bank of Japan maintained its key short-term interest rate at -0.1%. The result being that the forwards spread increased 75bps on the short end.

US 10-year yields are now up 19 bps on the day to 3.67% while Japanese 10 years yield just 19 basis points. The natural outflows from Japan are dam breaking.

Yen Intervention

Japan’s top currency diplomat Kanda: Forex action can be taken any day, anywhere, including on holidays.

Dollar Yen traded to 24-year high 145.40 after the BoJ announcement and fell back to 144.70 on rumored heavy selling by large Pension funds and exporters hitting USDJPY likely on the request of authorities in Defacto intervention.

Japanese officials stepped up verbal intervention on the currency this month. Finance Minister Shunichi Suzuki said Tokyo wasn’t ruling out any steps to stop the yen’s fall, including government intervention to sell dollars and buy yen.

BOJ Gov. Haruhiko Kuroda however has said he doesn’t see monetary tightening as a good way to stabilize the yen. Mr. Kuroda and other policy board members have said Japan needs easy monetary policy because its economy is still recovering from the pandemic and wage growth remains sluggish.

Dollar yen recovered from that initial assault which led to MoF intervention which occurred in late Asia hours. The dollar plunged more than 2% to around 140.63 yen. A new cycle high and new high in the USDJPY going back to 1998 was reached at 145.89 the intervention sent the USDJPY below the September 9 low at 141.49.

Bonds were routed globally Thursday.

The selling intensified after the BoE decision hitting Gilts then through to Treasuries which were in a steady retreat that lifted yield on all tenors to fresh highs for the year. Today the U.S. Treasury sold $15 bln in 10-yr TIPS at a high yield of 1.248%, which stopped through the when-issued yield by 3.3 bps. The bid-to-cover ratio hit 2.54x and indirect takedown reached 70.8%, representing an improvement on both fronts over the last 10-yr TIPS sale.

US Treasury Curve Thursday

  • 2-yr: +13 bps to 4.11%
  • 3-yr: +15 bps to 4.10%
  • 5-yr: +18 bps to 3.89%
  • 10-yr: +16 bps to 3.67%
  • 30-yr: +10 bps to 3.61%

The 1998 intervention cost $3 billion over two days. The size of intervention this time will be released at the end of the month. Japan began intervening to strengthen the yen in Dec 1997, but it kept rising and made new highs in two weeks. In the April 1998 intervention it took about three weeks to make new highs. A third intervention in June 1998 worked with the LTCM crisis helping.

Bank Of Japan September 2022 Monetary Policy Decision

The Bank of Japan as widely expected kept unchanged its -0.1% target for short-term interest rates, and 0% for the 10-year government bond yield. The move follows the Federal Reserve raised rates 75bps earlier in the day, increased the interest rate differential between the U.S, and Japan. The decision added downward pressure on the yen. The yen fell briefly to a fresh 24-year low of more than 145.40 against the dollar after the BOJ’s announcement. The bank will remain an outlier among a global wave of central banks tightening monetary policy.

 BoJ Chief Kuroda

BOJ September 2022 Monetary Policy Decision Statement

BOJ Monetary Policy Highlights

  • Bank of Japan short-term interest target kept at -0.1%
  • 10-year JGB yield target remains around 0%
  • Decides to end as scheduled pandemic-relief funding programme expiring in September
  • Made decision on yield curve control by unanimous vote
  • Expects short- and long-term policy rates to remain at ‘present or lower’ levels
  • Will take additional easing steps without hesitation as needed with an eye on the pandemic’s impact on the economy
  • Must be vigilant to financial, FX moves and their impact on Japan’s economy, prices

Unscheduled Bank of Japan Bond-Buying

(Yesterday ahead of their statement)

  • Bank of Japan unscheduled bond-purchase operation
  • The BOJ said it would buy 150 billion yen ($1.04 billion) of debt due in five to 10 years, and 100 billion yen of securities maturing in 10 to 25 years.
  • That’s in addition to the central bank’s daily offer to purchase an unlimited quantity of 10-year bonds at 0.25%.

“The unscheduled operation is a message to restrain rise in yields,” said Mari Iwashita, chief market economist at Daiwa Securities Co. in Tokyo. “It may also be a warning against some misguided speculation about a possible tweak to BOJ policy.”


Consumer inflation in Japan reached 3% in August, exceeding the bank’s 2% target for the fifth straight month. By comparison U.S. inflation remains above 8%.

The yen’s recent weakness has inflated import prices. Japan depends largely on imports for food and energy. Their prices are already rising due to the Ukraine war and global supply shortages. BOJ officials believe Japan’s current inflation is unlikely to last long. Mr. Kuroda recently said inflation is likely to go back down to 1.5% in 2023.

The next policy statements are due from the BOJ

  • October 28
  • December 20

Source: BoJ

From The Traders Community News Desk