A former central bank official who was involved in the Tokyo market push a decade ago said Japan may continue to intervene to support the yen until the risk of speculators triggering a sharp yen depreciation is removed. The yen rose sharply on Thursday, a day after traders suspected intervention measures were taken on Monday to stem a sharp decline. Japan’s Finance Ministry declined to confirm whether it had intervened, making markets nervous about the possibility of another round of intervention.
At the time of Tokyo’s intervention from 2010 to 2012, Ton Takeuchi, head of the Bank of Japan’s foreign exchange department, said Japan might enter the market on Monday because the yen suffered sudden and huge losses in a short period of time that day. He said if the yen suddenly appreciated 2-3 points in a day without supervision, it could trigger a free fall in the yen, exacerbating concerns about the yen and the broader economy. By intervening when the yen’s decline accelerates in the short term, the authorities can maximize the psychological impact by alerting traders to the possibility of more action.
Japan has historically been primarily concerned with preventing a sharp appreciation of the yen that would damage its export-reliant economy. Takeuchi participated in several yen sell-off intervention actions between 2010 and 2012. Under Japanese law, the government has jurisdiction over monetary policy, with the Bank of Japan acting as an agent for the Finance Ministry in deciding when to intervene.
