ANALYSIS-Currency intervention pointless, so BOJ stays away
Tuesday July 16, 3:49 AM EDT
By Chikafumi Hodo
TOKYO, July 16 (Reuters) - Currency dealers are struggling to explain why the Japanese authorities have kept out of the market for two weeks despite the dollar's fall to a 17-month low, but many say the simple reason is that intervention right now is pointless.
"Have they (the authorities) already given up? If so, why were they so aggressive when the dollar was above 123 yen in the first place?" asked Hideaki Furumaya, interbank desk head at Trust and Custody Services Bank.
At 0745 GMT on Tuesday, the dollar was at 116.27/33 yen.
Many dealers believe the authorities have realised there is no point to intervention at the moment, given the weight of factors pushing the U.S. currency down.
Other leading countries have no compelling reason to join the Japanese in intervening and even if they did, there's no guarantee it would be any more effective, dealers said.
"At some point we'll see intervention, but in this climate, the dollar is expected to stay under pressure with or without intervention," Furumaya said.
"Although it's very unlikely, the impact of joint intervention would also be limited. It's ironic, but probably the yen can only fall on negative economic factors from Japan."
Japan struggled out of recession in the first quarter of this year after three quarters during which the economy contracted.
With domestic demand still sluggish, exporting companies have fuelled the recovery, and the authorities are concerned that a stronger yen will choke off the growth in exports.
As a result, Japan intervened on seven occasions between May 22 and June 28 and is estimated to have bought a total of about $30 billion in intervention operations.
The Bank of Japan (BOJ), which acts as the agent of the Finance Ministry, first stepped into the market in May,to buy dollars at around 123.80 yen, a level regarded as one of the highest where the BOJ has conducted dollar-buying intervention.
Japan last intervened on June 28. Since then the dollar has kept on sliding, falling to a 17-month low of 115.65 yen in overseas trade on Monday.
"Initially, I was persuaded to change my perception towards the dollar/yen rate because I thought their determination was strong," a senior dealer at a Japanese trust bank said.
"I think many people changed their perception after the BOJ's aggressive intervention, but now we regret having done so, after seeing the dollar fall so much," the dealer said.
WORDS NO LONGER WORK
Monetary officials have been trying to talk down the yen, threatening that they would intervene when necessary, but market participants are getting rather weary of the chatter.
Forex traders paid little attention to Finance Minister Masajuro Shiokawa's televised comment on Sunday that a dollar range of 125-135 yen would be favourable for Japan.
He repeated on Tuesday that Tokyo would take appropriate action against excessive volatility in currency rates.
In fact, intervention has become less and less frightening to the market because traders have grasped the fact that the situation in Japan has little to do with the yen's rise.
Rather, the dollar's decline -- which has seen it fall to parity against the euro for the first time in over two years -- has come amid concern about falling Wall Street stocks, U.S. accounting scandals and worries about a U.S. economic slowdown.
Dealers said there were plenty of operators waiting for chances to sell dollars. For example, selling by Japanese exporters should be strong, given Japan's rising current account surplus.
Data on Monday showed that the surplus on the current account rose for the eighth month in May, jumping 107.7 percent from a year earlier to 1.044 trillion yen.
The trade surplus grew 182 percent to 728 billion yen.
Positions in the market do not augur well for intervention, either.
"The BOJ probably knows that the impact of intervention would be limited right now because short (dollar) positions are not plentiful in the market," said Koichi Abe, forex section manager at Aozora Bank.
In fact, intervention would be doing the market a favour.
"People aren't trading in fear of BOJ intervention any more, but in anticipation of intervention, with exporters and speculators waiting to liquidate dollars on any rally after intervention," a fund manager at a Japanese bank said. |
