Japan’s Ministry of Finance spent nearly $50 billion on April 29 and May 1 trying to prop up the value of the currency by selling US dollars and buying yen.
Who was on the other side of this trade?
Data from Deutsche Bank’s foreign exchange trading platform suggests: literally everyone.
“Nearly all client categories saw record USD/JPY buying during the assumed intervention days,” writes George Saravelos, global head of FX research at the German bank, in a note to clients on Thursday. “That absorption of USD/JPY selling from the Japanese Ministry of Finance was so broad-based continues to point to the lack of effectiveness of this policy.”
The Japanese yen is the weakest G10 currency in trading on Thursday, deepening its decline relative to the US dollar to nearly 10% so far this year.
Very low rates in Japan increase the appeal of holding other currencies where investors can earn more interest. Strategists have warned that action from the Bank of Japan may be needed to reinforce the Ministry of Finance’s attempts to guard against further yen weakness.
“Longer term, successful interventions tend to be (1) coordinated with other central banks and (2) unsterilized i.e. backed by shifts in relative monetary policy,” writes Dario Perkins, economist at TS Lombard, in a May 6 note. “Unilateral interventions often fail, especially when they run exactly counter to the broader thrust of monetary policy.”
At this point, perhaps the biggest risk to the anti-yen view is how popular that view is. Everyone and their mother was happy to sell yen versus the US dollar when the Ministry of Finance was buying recently. That's just part of an ongoing trend: speculators, in aggregate, have been short the yen for over three years. Bets in futures markets that the yen would decline are hovering near their highest level since 2007.
If the underpinnings of the short yen case start to fall apart, either by the Bank of Japan embarking on a more aggressive rate-hiking campaign or other central banks cutting rates by more than is currently priced in, then a lot of investors may be changing their minds — and positions — at the same time.
