Would I Intervene in USDJPY If I Was in I was in the BoJ's Shoes?

With USDJPY extending its high marginally to a 34-year peak at 151.97, Japanese officials have stepped up verbal intervention warnings.

As a result, Japanese officials face a credibility test after Finance Minister Suzuki said they could take “decisive steps,” a set of words used just before the intervention in October 2022. In addition, a news report that the MoF, BoJ and FSA held a meeting to discuss financial markets has put traders on intervention alert as well.

Note, that the Ministry of Finance (MoF) is in charge of the exchange rate and thus intervention policy while the Bank of Japan (BoJ) is responsible for carrying it out

So, i asked myself, What would I do if I was in the MoF/BoJ’s shoes?

Thankfully, I am not but if I were, I would:

• Wait to see if verbal intervention cools the market. Time is on my side as the market is thinning ahead of the long Easter break. In any case, I would use verbal and covert intervention (if necessary) to keep USDJPY below 152 into the weekend. Note, that the threat of intervention can often act as a stronger deterrent than the actual event.

• If pressure on the upside continues into the new month, I would consider taking advantage of a thin Easter market by aggressively intervening. The ideal time would be just before Monday’s opening as it would be after quarter and the Japanese fiscal year-end.
• Continue intervening in USDJPY at s lower levels until it trades solidly below 150.
• Intervene as well in its major crosses (e.g. EURJPY, GBPJPY, AUDJPY, etc.) to force a squeeze on carry trades as this has been a key source of JPY weakness.
• Now here is the tricky part. I would leave the intervention unsterilized. Intervention, terilized, would have a limited lasting impact.

This is just what I would do if I was in the BoJ’s shoes. The reality may be something different but since Japanese officials have stepped up the intervention threat, it is sort of a put up or shut up situation so it pays to be prepared.

I posted this timely article yesterday, which is a primer on different types of intervention and which is most effective

Trader Alert: Will the Bank Of Japan Intervene and Does Forex Intervention Work?