Japan to maintain Yen intervention amid currency free-fall concerns

Yen support strategy: Speculation arises that Japan will persist in intervening to support the yen until the threat of currency free-fall diminishes, according to a former central bank official familiar with Tokyo's past market interventions.

The yen experienced a notable surge on Thursday, suspected by traders to be a result of a second day of intervention following action taken on Monday to counteract sharp declines in the currency.

Japan's Ministry of Finance has refrained from confirming whether intervention has occurred, leaving markets apprehensive about the possibility of further intervention.

Atsushi Takeuchi, who led the Bank of Japan's foreign exchange division during Tokyo's interventions from 2010 to 2012, suggested Japan likely intervened on Monday due to the abrupt and significant drop in the yen's value.

Yen free-fall risk

Takeuchi cautioned that leaving a rapid 2-3 yen movement unaddressed in a single day could trigger a free-fall scenario, heightening concerns for the yen and the wider economy.

Intervening when the yen's decline accelerates over a brief period enables authorities to amplify the psychological impact, keeping traders vigilant about the potential for further action, he explained.

He asserted, "Authorities will persist in intervention until their objective, preventing speculative trading from precipitating a yen free-fall, is achieved."

G7 support likely

Takeuchi expressed doubt that members of the Group of Seven advanced economies, including the United States, would oppose Japanese intervention as long as it targets rapid, speculative yen movements.

Regarding concerns about Japan's ability to utilise its $1.29-trillion foreign reserves for intervention due to potentially illiquid assets such as US Treasuries, Takeuchi dismissed the notion, stating that Japan's reserves are specifically held for such circumstances.

He emphasised that while authorities must consider market impact when selling assets for intervention purposes, the vast size of the US Treasury market should mitigate any issues.

Export-driven economy

Japan historically focused on preventing sharp yen appreciation detrimental to its export-driven economy, with Takeuchi participating in multiple yen-selling interventions.

Japanese law delegates currency policy jurisdiction to the government, with the BOJ acting as the finance ministry's agent in intervention decisions.

Takeuchi currently serves as the chief research fellow at the Ricoh Institute of Sustainability and Business.

(With Reuters Inputs)