Japan Ministry of Finance gives ambiguous response on market intervention criteria... "Deliberately amplifying confusion"

Authorities "Market Intervention Due to Excessive Fluctuations"
Prolonged Yen Weakness Also Involves Excessive Volatility
Market Confused About Timing of Foreign Exchange Market Intervention

On the 3rd, as the dollar-yen exchange rate surpassed the 150-yen level, Japan's Ministry of Finance hinted at verbal intervention, stating that it would intervene in the market if excessive exchange rate fluctuations were observed. However, by ambiguously defining what constitutes 'excessive fluctuations,' market confusion intensified.

On the 4th, Masato Kanda, Vice Minister of Finance, declined to comment when asked whether the government had intervened following the sharp drop of the dollar-yen rate from above 150 yen to the 147 yen level the previous day, saying, "I will refrain from commenting."

Earlier on the 3rd, the dollar-yen value suddenly strengthened, plunging from above 150 yen around 11 p.m. to the 147 yen level. After the exchange rate broke through the psychological barrier of 150 yen, the sudden volatility led the market to speculate that Japan's foreign exchange authorities had intervened.

However, on the same day, Vice Minister Kanda indicated verbal intervention by stating that if excessive fluctuations occur in the future, "no options will be ruled out." Regarding the criteria for judging 'excessive fluctuations,' he explained that they would examine whether unilateral movements accumulate to cause very large exchange rate changes over a certain period.

The market was confused over the definition of these excessive fluctuations. The Ministry of Finance's mention that not only short-term exchange rate swings over about a week but also the prolonged yen depreciation trend since early this year could be considered large exchange rate fluctuations was the cause of the confusion.

Nihon Keizai explained, "Vice Minister Kanda stated that the 20-yen gap between the dollar and yen since the beginning of the year could also be seen as excessive fluctuation," adding, "This signals to the market that price fluctuations over several months could also be a criterion for considering market intervention."

Until now, the market had predicted that the Japanese government’s foreign exchange market interventions would occur around the 145 yen level, when the government first bought yen last year, and the psychological barrier of 150 yen. Nihon Keizai reported, "Among market participants, there is a growing voice of puzzlement that the government’s set (exchange rate) defense line is not visible."

On the previous day, Japan’s Finance Minister Shunichi Suzuki also lowered market expectations that yen would be purchased at the 150 yen level by stating that the decision to intervene in the foreign exchange market would be based on exchange rate volatility rather than the exchange rate level.

Some analysts suggest that the Japanese government is deliberately creating market confusion to maximize the impact of future foreign exchange market interventions. This strategy aims to prevent market participants from predicting government interventions in advance by encouraging speculation about monetary policy.

Bloomberg explained, "The more unsettled market participants are, the more beneficial it is for Japan," adding, "Japanese officials are strategically maintaining silence about foreign exchange market interventions to make the market speculate."

This content was produced with the assistance of AI translation services.