Steven Englander is head of Global G10 FX research and North America macro strategy at Standard Chartered Bank. He spoke in an interview with CNBC:
- “I think we’re actually very, very close to them [Japanese authorities] jumping in … they’ve already discussed the political consequences and nobody’s sitting there asking for a weaker yen,”
- intervention would be aimed at buying time until the Fed starts cutting interest rates or for the Bank of Japan to hike its rates a little more
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I posted on a heads-up from Japanese PMI Kishida hinting at government/BOJ 'coordination' earlier:
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A note on the mechanics of intervention:
- The Ministry of Finance (MOF) in Japan is responsible for formulating foreign exchange policy in the country, while the Bank of Japan (BOJ) is responsible for executing such policies, particularly in terms of FX intervention.
- The MOF can decide to intervene in the FX market if it believes (in the current situation) the yen is too weak. Once the MOF decides to intervene, it gives instructions to the BOJ. The BOJ then conducts operations in the FX market by (in current circumstances) buying yen. The Foreign Exchange Fund Special Account (FEFSA), which falls under the jurisdiction of the MOF, is used for interventions. You will note that in the current situation, where the BOJ would buy yen, they will dip into USD reserves to fund the other side of the trade, buying USD (or other currencies if needed).
- The BOJ's operations are usually conducted through commercial banks that deal in the foreign exchange market. They may be spot transactions, or forward transactions that are set to occur at a future date. Note that while the MOF has the ultimate authority to decide when to intervene, it does so in close consultation with the BOJ. The BOJ provides expertise and advice on monetary and financial market conditions, which can influence the MOF's decision. This collaboration reflects the balance between the roles of the two entities: the MOF as the government's chief financial and economic advisor, and the BOJ as the country's central bank that maintains stability in the financial system.
