Japan readying intervention to reverse yen - report

Discussion in 'Wall St. News' started by ASusilovic, Aug 1, 2011.

  1. NEW YORK (Xetra: A0DKRK - news) (Reuters) - The Japanese government is preparing to intervene in currency markets to weaken the yen as it nears a record high against the dollar, Japan (NYSE: MCO - news) 's Nikkei (Osaka: ^N225 - news) newspaper said on Monday.

    The report also said the Bank of Japan has begun discussing additional monetary easing.

    The dollar earlier on Monday fell to a four-and-a-half month low against the yen, but backed off from that level later in the session in a surge traders said was not the result of intervention.

    If Japan intervenes, the BOJ's policy board will consider additional easing measures at a two-day meeting starting Thursday, Nikkei said. It added that a five to 10 trillion yen (39.8 billion pound to 79.6 billion pound) expansion of the central bank's 40 trillion yen asset-buying fund was a likely step.

    The report also said the board will likely consider increasing purchases of government bonds and short-term securities, as well as buying corporate bonds and other riskier assets to help companies raise needed funds.

  2. Huge bank order triggered spike in USD/JPY-traders

    * Many options structures at the 75 yen level * Nikkei reports Japan preparing to intervene (Adds details, quote, byline)

    By Gertrude Chavez-Dreyfuss NEW YORK, Aug 1 (Reuters) - The foreign exchange market was on high alert on Monday for signs of action from Japanese monetary authorities to weaken the yen after a huge bank order to buy dollars raised eyebrows.

    Traders said the move did not appear to be intervention by Japan but the timing of the brief spike in the dollar, coming as it did after it neared a record low versus the yen, left the market jittery. An official from the Japanese Ministry of Finance in Tokyo said the office was aware of currency movements but he could not comment on the dollar's sudden rise versus the yen.

    If Japanese officials were to intervene to weaken the yen, recent history suggests the lows struck by the dollar on Monday could be the place. It's where Japan intervened with the help of other developed nations back in March. It also explains why the market is on edge, though some analysts say conditions now are different from the situation in March. Back then the international financial community banded together to help Japan's economy shortly after its earthquake and tsunami disaster.

    "The talk was that there was a huge order from a large Japanese bank, but it was part of the normal flow of the market," said a London-based trader. The dollar surged as high as 77.100 yen <JPY=EBS> on trading platform EBS from 76.456 within one minute. It was last at 77.259, up 0.7 percent on the day.

    The dollar had earlier plunged to 76.290 yen, its weakest since the mid-March intervention to weaken the surging yen. The all-time low of 76.250 was hit on March 17. "There is no indication that there was intervention, no rumor, no nothing. There wasn't even anything about the Bank of Japan checking rates," said a trader from a U.S. bank.

    The dollar's slump against the yen came amid a protracted slide by the U.S. currency during weeks of tense negotiations in Washington over raising the national debt limit to avert a catastrophic default. The yen, along with the Swiss franc, has been one of the foreign exchange market's favorite safe havens from recent U.S. budget turmoil.

    Another trader said there are numerous options structures at the 75 yen level. Richard Franulovich, senior currency strategist at Westpac in New York said if there is indeed a 75 yen-options structure, that suggests the market could see another wave of dollar selling against the yen if that level is triggered.

    "A lot of Japanese retail investors who have bought a lot of Aussie/yen lately could be capitulating and we could see dollar/yen get to 70 quite quickly," he said. On Monday, Japan's Nikkei newspaper said, without citing sources, that the Japanese government is preparing to intervene in currency markets to weaken the yen as it nears a record high against the dollar. The report also said the Bank of Japan has begun discussing additional monetary easing. For details, see [ID:nN1E77015H]

    Oddly, it has come as Japanese domestic investors have built up short yen positions designed to take advantage of higher yielding investments overseas. Traders' net long position in the dollar versus the yen currency pair and other yen crosses hit a record of 722.3 billion yen two weeks ago or around $9.4 billion, according to data from the Tokyo Financial Exchange. Dollar/yen net long bets from these investors totaled 275.4 billion yen, or roughly $3.8 billion.

    Prior to the coordinated intervention in March, Japanese margin traders had also built up significant long positions in dollar/yen. (Editing by Chizu Nomiyama) First Published: 2011-08-01 16:59:52
    Updated 2011-08-01 21:48:03