Yen Intervention Jitters Linger After Tokyo's $96 Billion Sales

The Japanese Yen's recent drop in value has sparked renewed talk of intervention by the Bank of Japan. A near 1% fall in USD/JPY over a couple of minutes yesterday afternoon, followed by another slide overnight, led to speculation about another round of intervention after the Bank of Japan's earlier $96 billion sales.

Chris Turner at ING notes that traders initially doubted whether this was an actual intervention due to the lack of dislocation in the FX electronic matching systems. However, authorities seem to be satisfied with the price action and are keen to encourage a sense of urgency for those long USD/JPY and EUR/JPY above 160 and 186, respectively.

A likely Fed hike in mid-September is expected to keep USD/JPY relatively bid this month. For any sustainable turn lower in USD/JPY, the Bank of Japan would need to adopt a much more hawkish stance and introduce new initiatives to encourage domestic investment in Japan.