USDJPY and BOJ intervention: 1991 to 2022

(Brian Twomey – Brian’s Investment)

The Japanese Ministry of Finance releases intervention data every month as leaders to recommend intervention. The BOJ simply applies recommendations under Article 7, Section 3 of the Foreign Exchange and Foreign Trade Act.

Why the question of intervention is vital to today’s traders is because the Japanese don’t ever intervene once and the exchange rate price is settled. The Japanese intervene many, many times during any given month.

Take for example June 1993 when the BOJ intervened 10 times during the month. This is common practice to BOJ intervention. The BOJ intervened 5 times in November 2011 and once October 2011, August and March. Fukishma was the issue then.

The other question is why intervene now when interventions became practically non existent to currency markets since early 2000’s and the 1990’s. Will intervention lead other central banks to intervene or coordinated actions by central banks.

Is intervention the first action to 1930’s style export wars. Export wars of the 1930’s caused volatility as never seen again in currency markets. The swing in prices was far more extraordinary than ever witnessed today. The 1930’s wars gave us Bretton Woods and 1% exchange rate movements in dead currency markets.

In all instances of intervention since 1991, the BOJ never involved themselves in coordinated actions but instead flew solo.

The current data dates to May 1991.

The commonality to intervention months was January to April and rarely June and July. But most specifically March, April and May are heavy intervention months. April represents Japanese budget years and a low yet specific exchange rate is required to fund the budget.

More importantly, USD/JPY begins its 6 month yearly cycle rise from January to April and May. USD/JPY normally achieves its highest yearly level in April then drops to allow EUR/USD to rise from May and June to December.

Remaining months are extraordinarily rare for interventions. Last time the BOJ intervened in October was 2003 and 1994. Next comes 5 times for September, 1993, 1994, 1995, 1999 and 2000. Then comes 4 times for November and 3 times for December 1997, 1999 and 2003. The BOJ intervened once in August 1992.

From May 1991 to August 1992, the BOJ intervened in USD/JPY to short USD and long JPY or buy USD and sell JPY. Then a change occurred. From April 1993 to 2011, the BOJ intervened and bought USD and sold JPY.

For the BOJ to intervene in September to sell USD and buy JPY represents an enormous change to the past 18 year practice.

From 1991 to 2003, the BOJ intervened to USD/JPY nearly 300 times. From 1991 to 2022 or 31 years represents 372 months.

While USD/JPY is the prominent intervention currency, the BOJ began intervention once in August 1993 to buy DEM German Marks and sell JPY. November 1997, the BOJ 5 times intervened to sell USD and buy IDR, the Indonesian Rupiah.

As EUR/JPY and the Euroyen interest rate was introduced in 1997, 1998, the BOJ intervened 3 times in June and November 1999 quite heavily to buy EURO’s and sell JPY. Intervention to EUR/JPY began again to buy EUR, sell JPY March and September 2000. September 2001 and June 2002.

Year 2003 was the last year to intervene on EUR/JPY by 2 times in February 2003, 3 times for March 2003 and once May 2003.

BOJ intervention costs begin around 100 million. Take May 9, 2003 as an example. The monthly range was 119.63 to 118.08. The USD side at 118.08 converts to JPY at 17622.3. Intervention costs 2166. Intervention costs are never at the reciprocal exchange rate as reported by news services. Intervention at the reciprocal exchange rate would vanquish the 1.3 trillion BOJ reserves.

May 9 range to buy USD, sell JPY was 117.59 to 117.02. May 12 range at 3302, traded 117.37 to 116.20. May 13 traded 117.53 to 116.34 at 3037. The BOJ intervened 13 times in May 2003 to miniscule ranges.

While USD/JPY in May 2003 traded 119.63 to 118.08 or 155 pips, DXY traded 97.46 to 92.57 or 489 pips. From 119.63 to 97.46 or 2200 pips and 2500 at 118.08 and 92.57. Current USD/JPY 149.31 and DXY at 112.29 or 3700 pips. As reciprocals 0.0066974 Vs DXY 0.0089055 or a spread at 0.0022081. If a warning shot existed to intervention, possibly its found in the USD/JPY and DXY spread.

Japanese Call rates trade roughly 8 points per day and covers JPY/USD while ECB interest rates trade 15 ish points per day Vs 20 points for Fed Funds. Not much to deduce from this data to intervention.

USD/JPY outlook: Regains traction after Friday’s intervention; eyes key barriers at 150.00/42

(Slobodan Drvenica – Windsor Brokers)

The USDJPY bounces strongly in early Monday and regains levels near 150 barrier, signaling that a positive impact from a massive intervention to support yen on Friday, was not lasting long.

The pair dipped from new 32-year high (151.94) to 145.51 following Japan’s record nearly $20 billion intervention, but yen was unable to hold gains as a cocktail of factors continues to strongly support dollar, even though the media report on Friday signaled that the US central bank will likely debate the size of future rate hikes, suggesting that aggressive tightening mode would start to ease soon.

Fresh strength eyes pivotal barriers at 150.00/42 (psychological / Fibo 76.4% of 151.94/145.51 pullback), break of which would firm the structure and open way for further advance.

Larger bulls remain intact but need a close above 150 pivot to generate fresh signal and open way for retest of new peak at 151.94, violation of which would unmask Apr 1990 peak at 159.16.

Rising 20DMA offers initial support at 148.40, followed by 146.85 (Fibo 23.6% of 130.39/151.94) and today’s spike low at 145.51 (reinforced by 30DMA).

Caution on failure to clear 150 barrier that would signal extended consolidation, but bullish structure is expected to remain unharmed while the action stays above 146.85 Fib support.

Res: 149.70; 150.00; 151.94; 153.46.
Sup: 148.40; 147.68; 146.85; 145.51.