Anna 
Japanese officials are signaling their readiness to intervene in the foreign exchange market to bolster the yen, a move that challenges assertions of a global race to weaken currencies. However, this intervention strategy faces challenges due to recent leaks to the media, compromising the element of surprise crucial for successful interventions. The Japanese approach contrasts with the finesse and well-timed interventions typically executed by the US.
Successful intervention hinges on surprise, magnitude, and support, including policy and multilateral backing. While Japan may lack surprise, it can leverage signaling a change in monetary policy to garner support for its intervention efforts. Nevertheless, prospects for support from entities like the ECB or the Fed appear minimal.
The anticipated intervention could have broader implications, potentially impacting the dollar and other currencies. Firstly, support for the yen could inadvertently bolster the Chinese yuan, currently trading at lows since last November. Secondly, intervention may initially pressure Treasuries, as market assumptions dictate BOJ holdings would be sold to purchase yen. However, officials are believed to maintain a liquid balance. Thirdly, any yen bounce resulting from intervention is likely to be short-lived.
The threat of intervention and shifting risk-reward dynamics weighed on the dollar against the yen recently, with the greenback retreating from its highs. The expiration of options at JPY152.15 today (~$1.25 billion) suggests increased risks of intervention, particularly when European and North American markets are closed.
In other currency movements, the Australian dollar experienced downward pressure, failing to sustain levels above $0.6530 in North America. A breach of support at $0.6500 could trigger a retest of the March low near $0.6480. Meanwhile, the People’s Bank of China (PBOC) set the dollar’s reference rate at CNY7.0948, prompting observations regarding Chinese officials’ reference rate practices.
The timing of allowing the dollar to rise above CNY7.20 reflects broader currency dynamics, with the greenback gradually strengthening against the yuan this year. Despite occasional anomalies, the dollar continues to trade above its onshore band, indicative of nuanced currency management strategies amidst evolving market conditions.
