Watch Out for Key Commentaries to Assess Intervention Risk in Yen
One of the biggest risks facing Yen is the risk of intervention from Bank of Japan (BOJ), which even if fades in medium term, may lead to heavy loss in the near term. While Bank of Japan (BOJ) doesn’t indicate, when it may intervene in the market, history has shown there are specific languages that comes prior to intervention.
While BOJ hasn’t intervened in the Yen market since it launched ambitious monetary stimulus back in 2012. But history from 1990s show it has been quite an interventionist, acting almost thrice in two months.
Nomura describes the intervention language into five levels, while there is no risk of intervention at level one languages, possibilities are extremely high at level five.
- When languages are like “Strong Yen has positive effects” or “Yen is driven by overseas factors”, there is no risk of intervention.
- When the officials say “closely watching the market”, “Yen move is speculative/one sided”, risk goes up but still not imminent.
- When languages are like “Not reflecting fundamentals”, “move is disorderly”, there are some risk of intervention.
- It is level four, when the bank says, “we will take bold actions if necessary”, meaning high risk of intervention.
- And its top level five, when officials say, “closely communicating with foreign counter parties. At this level, an intervention is imminent.
As of now, communications seem to be at level 3, which points there could be some further room before intervention is likely.
Yen is currently trading at 108.2 per Dollar.
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