Japan's Bold Moves in Forex Market Spanning Months

As the yen continues to struggle, retail investors and Japanese authorities make consequential decisions that may reshape the currency market.

Published June 23, 2024 - 00:06am

5 minutes read
Japan
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An army of retail traders appears to be reloading bets for a rebound in the yen as the currency's slide increases the chances of Japan intervening in the market again.

Bullish positions on the yen against the dollar have been building since mid-May via futures contracts that cater to individual Japanese investors, data from Tokyo Financial Exchange Inc. show. These wagers tumbled on April 29 and May 1-2, around the time when the government is thought to have stepped into the market, indicating that retail traders sold the yen to take profit.

With the yen dropping back toward 160 versus the dollar, retail traders are on the edge of their seats wanting intervention to come as soon as possible, according to Takuya Kanda, head of research at the analysis unit of Gaitame.com, a Japanese online brokerage that caters to individual forex traders.

Trying to ride the government's coattails to riches is a risky strategy, especially for those using borrowed money to amplify returns. Some investors were badly burned when the Ministry of Finance ordered the Bank of Japan into the market to defend the currency in April and May. But others who got the timing right made millions of yen.

"I should say, thank you MOF. It's a huge opportunity," said Keisuke Oikawa, a 58-year-old Japanese retail investor based in Singapore. Oikawa said he made about ¥1.5 million ($9,400) from various cross-currency trades that took advantage of fluctuations in the market around when Japan intervened in April-May.

Comments on Friday from the nation's top foreign-exchange official, Masato Kanda, are likely to give fresh encouragement to traders like Oikawa. Kanda said Japan would continue to take appropriate measures to address any excessive moves in the yen, despite being included in the US Treasury Department's so-called 'monitoring list' for forex practices.

The number of currency trading accounts in Japan rose to a record 12.4 million last year, according to Gaitame.com. While many individuals hold small positions, they matter as a group in the world's currency markets, with research from the central bank showing that Japanese investors account for nearly 30% of the global retail trading.

Government figures show that Japan spent a record amount of ¥9.8 trillion to support the yen between April 26 and May 29. While officials haven't stated which days they intervened, the moves in the market point to April 29 and May 1.

Japan's Vice Finance Minister for International Affairs Masato Kanda speaks during a press conference after attending the G20 Finance Ministers and Central Bank Governors meeting in Sao Paulo, Brazil, on Feb. 29. Japanese authorities are ready to take action against speculative and excessively volatile moves in the currency market that hurt the economy, the country's top currency diplomat Masato Kanda said on Friday.

Japan are ready to take action against speculative and excessively volatile moves in the currency market that hurt the economy, the country's top currency diplomat Masato Kanda said on Friday.

"It's not intended to change the market's trend," instead it was aimed at smoothing excessive volatility in the currency market, Kanda told reporters when asked about exchange-rate intervention.

"As long as currency rates move stably in line with fundamentals, there's no need to intervene. By contrast, if there is speculative, excessive volatility in the market, we will take resolute action," said Kanda, who is vice finance minister for international affairs.

The remarks failed to keep the yen from falling below 159 to the dollar for the first time since April 29, as markets continued to focus on the wide interest-rate divergence between Japan and the United States. The dollar stood at 159.12 yen in Asia on Friday.

Chief Cabinet Secretary Yoshimasa Hayashi also warned yen bears against pushing down the currency, saying authorities would continue to monitor moves in the exchange-rate market.

"It's important that exchange rates move in a way that reflects fundamentals," he told a news conference.

Japan spent 9.8 trillion yen ($61.6 billion) intervening in the foreign exchange market in April and May, after the Japanese currency hit a 34-year low of 160.245 per dollar on April 29.

While the moves have kept the yen from testing fresh lows, they have failed to reverse the currency's downtrend that is hurting households by pushing up fuel and food import costs.

As markets keep an eye on the chance of renewed intervention, a U.S. Treasury report issued on Thursday added Japan to its foreign exchange monitoring list alongside six countries that were on the previous list.

Finance Minister Shunichi Suzuki said on Friday he did not believe Washington had any problem with Japan's currency policy.

"We will communicate closely with U.S. and other countries' authorities based on the G7 agreement that excessive, disorderly currency moves could have adverse effects on economies," Suzuki told a regular news conference.

While the U.S. Treasury said Tokyo's recent currency intervention was not a factor in deciding to add Japan to the monitoring list, it said intervention should be reserved only for very exceptional circumstances in large, freely traded exchange markets.

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