The BoJ first intervened during a public holiday in Japan, that is to say Monday this week. And then for the second time just a few hours ago, during the New Zealand morning.
Although both times they had an impact, and they will be happy with it, both times are indications of their weakness, as well as that of the Ministry of Finance:
1. They don’t want to spend too much of their US dollar reserves:
- Japan’s foreign exchange reserves are limited
- 2022 interventions will cost the country around $62 billion
2. Despite all the talk, it doesn’t seem like they have any support from the United States (except for verbal support). So far these are just interventions in times of limited liquidity, they don’t want to attack the market. It really looks like they are alone.
Earlier today:
USD/JPY update, fluctuations continue:
–
If you are curious about the intervention mechanisms and why you should watch the Ministry of Finance rather than the BOJ:
- The Ministry of Finance (MOF) of Japan is responsible for formulating the country’s foreign exchange policy, while the Bank of Japan (BOJ) is responsible for executing these policies, particularly in terms of foreign exchange intervention. exchange.
- The MOF can decide to intervene in the foreign exchange market if it considers (in the current situation) that the yen is too weak. Once the MOF decides to intervene, it issues instructions to the BOJ. The BOJ then conducts operations in the foreign exchange market by purchasing (under current circumstances) yen. The special account of the Foreign Exchange Fund (FEFSA), which falls under the jurisdiction of the MOF, is used for interventions. You will notice that in the current situation, where the BOJ would buy yen, it would draw on US dollar reserves to finance the other side of the transaction, buying US dollars (or other currencies if necessary).
- The BOJ’s operations are generally conducted through commercial banks that trade in the foreign exchange market. These may be spot transactions or futures transactions that are expected to take place at a later date. It should be noted that while the Finance Ministry has the ultimate authority to decide when to intervene, it does so in close consultation with the BOJ. The BOJ provides expertise and advice on currency and financial market conditions, which may influence the MOF’s decision. This collaboration reflects the balance between the roles of the two entities: the MOF as the government’s main financial and economic advisor, and the BOJ as the country’s central bank that maintains the stability of the financial system.
cnbctv18-forexlive
