After Dumping $22 Billion Overnight, Is The BoJ Intervening Again In USDJPY?

Mrs Watanabe will not be best pleased again this morning as it appears - having dumped billions of dollars into the FX markets overnight to try and maintain the momentum higher in yen - the Bank of Japan is 'intervening' in the currency markets.

USDJPY just puked almost two big figures after the hotter than expected PPI print...

Presumably they were hoping for a miss and planned their intervention - just like yesterday's - to exaggerate the momentum lower in USDJPY.

Comments overnight from Japan’s top currency official, Masato Kanda, who stuck with a strategy of trying to keep market players guessing, prompted a spike lower also but that failed very fast.

He told reporters in Tokyo on Thursday night that he wasn’t in a position to say if the move was intervention.

“Our practice is basically not to say whether we have intervened or not,” he said Thursday.

“While some believe the move was a reaction to the CPI results, others say that other forces may have been at work.”

He followed up with comments early Friday, saying that given the yield gap between the US and Japan, speculation was probably behind the moves.

TV Asahi, a Japanese broadcaster, reported officials had stepped into the currency market.

Daily newspaper Mainichi Shimbun also reported an intervention, citing an unidentified Japan government official.

More problematically, according to a Bloomberg analysis of central bank accounts, the scale of intervention was probably around ¥3.5 trillion ($22 billion), based on a comparison of Bank of Japan accounts and money broker forecasts.

“Right now we are seeing two-way activity in the market but no clear directional bias,” said Ruchir Sharma, London-based global head of FX option trading at Nomura International Plc.

Sharma added that there was “palpable nervousness in the market” in recent sessions from hedge funds looking to protect carry trades for scenarios like the one that just played out.

The spike on Thursday shared similarities with this year’s previous interventions, in which the Ministry of Finance bought ¥9.8 trillion to stem losses in apparent moves on April 29 and May 1.

The yen’s Thursday rally was the biggest on a one-day basis since May 1.

Not much bang for their buck and the PPI 'beat' ruined the momentum this morning, with USDJPY stalling at yesterday's lows.

“Certainly the extent of the move does suggest it could well have been intervention,” said Jane Foley, head of currency strategy at Rabobank.

“It’s quite exciting and does cause ripples on our trading desk.”

However, the lack of follow-through makes us wonder if the BoJ running out of ammo (or fortitude) to maintain any control of its currency?