Angle: Foreign exchange intervention immediately after the Bank of Japan meeting, speculation suddenly emerging about a repeat of what happened a year and a half ago | Reuters

TOKYO (Reuters) – The momentum of dollar buying continues in the foreign exchange market. Speculators are betting on the Bank of Japan’s slow pace of interest rate hikes, and the dollar is on the verge of hitting the milestone of 155 yen. Some in the market are speculating that the past pattern of government intervention in the market on the day of the Bank of Japan’s monetary policy meeting may be repeated.

On September 22, 2022, on the day of the Bank of Japan meeting, the government and the Bank of Japan decided to intervene to buy the yen for the first time in 24 years in response to the yen’s depreciation.

In the market, voices are heard that remind us of those meetings and this one. Both meetings take place at critical junctures when the yen has fallen to historic lows, and the market’s prior expectations are that policy will remain unchanged.

Last time around noon, the Bank of Japan announced that it would maintain its policy, and the dollar rose by nearly 1 yen to around 145 yen, hitting a new 24-year high. Then, at a press conference, then-Governor Haruhiko Kuroda said, “There is absolutely no change in continuing easing measures for the time being,” and the rate rose further to around 145 yen in the evening. Immediately after that, yen-buying intervention took place.

Shusuke Yamada, Bank of America’s chief Japanese exchange rate strategist, envisions a scenario in which the dollar tries to rise to 155 yen after the Bank of Japan meeting, leading to yen-buying intervention.

“The Bank of Japan has already made clear that a weaker yen can affect policy through its impact on prices, and this is not enough to push the yen higher.There is a growing need to raise interest rates in June. “It will be necessary to communicate that the Bank of Japan is willing to do so, but I don’t think the Bank of Japan will suddenly become hawkish.”

Anticipating intervention after the Bank of Japan meeting, individual investors who are active in short-term buying and selling have been selling the dollar significantly with the aim of earning short-term profits. According to Yoshio Iguchi, Head of Securities Markets at Traders, “The ratio of dollar selling by individuals is currently at an unprecedentedly high level of 70%, and the scale has reached an all-time high,” and other companies in the same industry are in a similar situation. That’s what it means.

On the other hand, dollar buying by importing companies has become noticeable.

A foreign exchange sales representative at a major bank reveals this. “Many people waited at the lower price to purchase the dollar at a lower price during the intervention, but since it did not come in easily and there was no sign of the dollar gaining momentum, they gave up and started buying at the higher price. (Long-term foreign exchange contracts disappear) There was also a knockout. “Starting” See more.

If many individuals aim to buy back dollars after the intervention, and if import companies that have been waiting for a chance also begin to take advantage of the dollar, the intervention will become a perfect place to buy back the dollar. “In a situation where there is no sign that the widening gap in interest rates between Japan and the U.S. is narrowing, the effects of intervention may be temporary,” said a foreign bank analyst.

After the previous large-scale intervention, the dollar depreciated to the 127 yen level in January of the following year. Although the largest yen buying intervention in history was the turning point for the dollar’s strong position, the general view in the market is that expectations for a US interest rate cut toward the end of the year were a factor that seriously pushed down the dollar.

Toru Sasaki, chief strategist at Fukuoka Financial Group, points out that the current situation in the US, where expectations for interest rate cuts have waned and the dollar is being bought, is “the exact opposite of the environment back then.”

He takes a negative view of intervening immediately after the dollar hit 155, saying, “It is difficult to make it look like yen-buying intervention is having an effect,” as there are few factors that would cause dollar buying to stall.

(Shinji Kitamura Edited by Hiroshi Hashimoto)

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