“The initial intervention in dollar-yen looks modest relative to that seen in March and September.
“As opposed to one ‘overwhelming’ bout of intervention, it could signal that they will use multiple smaller bouts. This could prove somewhat more effective than the previous tactic, insomuch as it may go further to introducing real two-way risk into the market.
“Nevertheless, Japan faces stronger headwinds in its efforts to defend its exchange rate. Most significantly, Finance Minister Noda has noted that the intervention was solo. This means that foreign authorities are less receptive to the action than was the case in March and they could apply pressure to Japan to not engage in protracted intervention.”
On reasons for yen to rise:
“Profit taking among retail investors, increased hedging activity by exporters and more balanced hedge-fund positioning than was the case ahead of the previous intervention may not be as conducive to a major rally.
“Coupled with a broadly negative dollar-environment and continued strong demand for safe-havens, this signals Japanese authorities may ultimately have limited success in pushing dollar-yen higher.
“We are reluctant to chase the move higher in the dollar- yen and any broad dollar strengthening or rise in risk appetite associated with the move itself is likely to prove short- lived.”
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