On the Yen Intervention, plus: Bonus Question!

Bruce Krasting's picture

I have not seen a “hard” number for the amount of intervention by the
BoJ on September 15th. The talk was that about Yen 2 trillion ($24b) was
sold for dollars. My own checking around confirms this range of
numbers. If anything, I think it could have been less than $20b. I would
appreciate any better estimates if people have them.

$20b sounds like a big number. On 15/9 it was. The BoJ got a big bang
for their buck. 2 big figures in a short time. The even better news was
that the 85.5 level held for two whole days!

Phooey! $20b is chump change in the FX market. By way of comparison
consider what the Swiss National Bank has done just this year. They
increased Euro reserves by ~$75b worth in an effort to contain the
rising CHF. The intervention failed miserably. The SNB threw in the
towel. The EURCHF collapsed as soon as the “We Quit”
sign went up. The Swiss intervened to the tune of nearly 20% of their
annual GDP in this busted effort. The market ate them alive and made a
fortune in the process.

I am not sure that comparing GDP and currency intervention leads to any
firm conclusions. But it is worth noting that the Swiss economy is about
a ½ trillion while the Japanese GDP is 5 trillion. Does that mean that
the BoJ will be forced to intervene to the extent of $1T (20%) before
they realize the effort is futile and they too throw in the towel? I
think not. I think the threshold of pain on this is a much smaller
number. My guess is that when/if intervention approaches $200b they will
be forced to quit.

$200b is an amount that could be positioned by just the big hedge funds
and market makers. The real significant supply would have to come from
global reserve holders. Specs alone will not bust the BoJ. Real money
movements could.

At some point in the not too distant future the following could happen:

The BoJ will advise the interbank players in Tokyo that they are willing to buy $5b against the Yen as public intervention.

The central banks of Brazil, Korea, Mexico, Russia, Saudi Arabia, (etc.) could all say, “Hey! That sounds good. Bernanke's trying his best to put the buck in the crapper. We have $5b to sell at that price”.

We have seen that when a central bank becomes a size buyer of an asset
that is in very large supply (and that no one really wants) the demand
that they create is overwhelmed by the supply that is revealed.

The BoJ is well aware what happened to Switzerland. They know their
“ammo” is limited. They must use their intervention dollars wisely. They
must play defense. They have to defend a given level and then back off
to defend a new lower level. They can’t say, “We will buy as many dollars at it takes at 84”. If they did something dumb like that the market would call their bluff, and eat their lunch.

Bonus Question

I am not wise enough on matters of Japanese politics to answer this. But
I will pose the question in the hope that someone has a thought. Some

-A read of the weekend Japanese newspapers confirms that the release of
the Chinese fishing boat captain was (and still is) a very big story.
Japan Inc. seems pissed.

-There has been no tit for tit reversal by China of its decision to end
exports of rare earth metals to Japan. Keep in mind you can’t make a
Prius without this stuff.

-The diplomatic issues between China and Japan are not to be scoffed at.
This is the big leagues. It is hard to see the outcome. But it is easy
to see that China will win and Japan will lose. China has all the chips.

-Japan has lost (or is losing) a friend. In this matter they need the help of their “true” friends. It is unlikely they will take hostile actions against their “friends” while they are fighting a war of words with China.

Connect this to FX

-Intervention is a hostile act. It is base protectionism. It is a beggar
thy neighbor policy. If the BoJ continues to intervene to support a
weaker Yen it is a certainty that some Congressperson and or Senators is
going to cry foul. This is even more likely to happen given that we are
six weeks away from an election and protectionism is selling well this
year in America.

-The BoJ can intervene as they wish. But I do not believe they would do
it in a vacuum. The decision to intervene is highly political. Active
and continued intervention would require a broad base of consensus.
There is no evidence that such a consensus exists on any issue in Japan

-Japanese leaders are well aware that the US does not condone currency
manipulation. Especially when that manipulation hurts the US
domestically. Look how far we have gone to push the Chinese on this
issue. In a different, but ultimately similar way, the Japanese are
doing to the US what the Chinese are. Manipulating terms of trade. The
fact that the US Treasury has refused to participate in any Yen
intervention speaks for itself. This policy is not in the US best

-Japanese leaders (and most importantly Shirakawa at the BoJ) are well
aware of the risk of bad press and a backlash from the US on the
currency issue. They know they do not want to wage that battle while
things are so unstable with China.

The Question(s)  (finally)

Given the foregoing thoughts, will the BoJ risk a political blowup with
its closest ally over the currency market? Or will they back off and
make an orderly retreat until the China issue blows over and DLRYEN is a
lot lower?

Answer that one correctly and you will get a bonus….

Shirakawa’s words from this weekend.  Does this sound like he is drawing a line in the sand? I think not.

We are ready to implement appropriate action in a timely manner if judged necessary.

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Widowmaker's picture


Clinton foolishly sold out Japan and hung them out to dry through MFN status renewal to China to feed America's corporations and ship every last productive job overseas.  

We (the US) don't give a shit about Japan and we absolutely don't give a shit about ourselves when big business needs unlimited welfare for unlimited failure.

This isn't about Asian relations its about plundering and fraud through America's corporate shells to protect the same shells at the expense of those relations.

The US policy fools need to quit feeding the dragons it's citizens and businesses.


suteibu's picture

The US has been selling out Japan since 1985.  The biggest problem is that the Japanese never figured it out and continue to allow the US a beachhead in Asia all the while clinging to the belief that the US is benefiting Japan.

Widowmaker's picture

Good validation, but timing before my personal exposure to the Asian racket.

Some would argue that the US sold out many other nations' productive capacity to China too.

No one on domestic soil can figure out why parts of the world despise the US, particularly that which does its bidding - big business with pockets deeper than failure colluding with totalitarian dictatorships in the name of "freedom" that is anything but.

If you aren't livid you aren't paying attention to your own interest.

suteibu's picture

The problem for countries like Japan is that if they try to get out from under the US, the patriotic citizens in the US will trash Japan without ever knowing what's really going on.  The US population can be as easily stirred up as the Chinese have been during their latest row with Japan.

Cruel Aid's picture

Seems like an OPEC type move to me, as in, gouge their current supply position. They probably just want to win. Not kill.

And the article wants to find alternatives to mined minerals. Sore Earth Policy. Yea we should get on that.

fx's picture

The BoJ running out of ammo? How can that be? Since their aim is a weaker yen for eternity and they will be happy to spark some inflation at home, why should they stop at buying a few hundred billion $?  All they have to do is print another gazillion Yen and sell it the next minute for paper-dollars or Euros or whatever paper crap they wish to target.

The swiss were worried that they will be left holding billions of Euros that may soon be a lot less valuable and contrary to the Japanese they have to worry about potential inflationary effects of their fx interventions, so they stopped for now. 

But the Japanese? They could sell even 100% of their GDP in Yen, if they wanted to.

Ted K's picture

Glory Glory Hallelujah, Glory Glory Hallelujah, Glory Glory Hallelujah, Tim's truth is marching on.......

Ted K's picture

The correct answer is Japan can get rare earth metals from Canada and tell the Chinese to suck their own cock.  Japan can "back off" and probably will, but China doesn't want to cut off the nose of their exporters despite the Chinese government's ugly face.  I think Japan has more chips than Bruce lets on, but they don't want to pour salt on a festering wound either.

 I'll take my bonus in 2--3 cheap bottles of Gin please.

AnAnonymous's picture

Lets me try to figure this out.

The whole strategy in the West is dry out pheripherical resources so these places brings no longer interest to noone.

Hey, Chief, Canada seems to me part of the Western block. So if Canada resources are dried up, does it mean a step ahead in the plan, that will leave China with its resources intact to weight even more in the balance in a near future?

Just wondering...

suteibu's picture

They have made a deal with Mongolia during this dustup with China.  They aren't totally incompetent.

Bruce Krasting's picture

You get 1 bottle of Popov...

Ted K's picture

Of course, I'm going to assume that's the 1.75 liter size.

Hephasteus's picture

My responses are limited. You must ask the right question.

How can the swiss devalue their currency without dumping their gold?

That detective is the right question.


tigerbean's picture

Why doesn't Japan just buy Potash with their overvalued JPY? That could kill a number of birds.

tom's picture

This isn't about some fishing boat captain, this is about regional naval dominance and offshore oil. The fisher was taken in an area that Japan and China both claim but Japan has long been able to de facto control thanks to previously unchallenged US naval dominance. China is pushing that back by pressing on multiple weak points simultaneously and will make steady progress.

Damn it, I don't know the answer to the bonus question. These have got to be trying times for Japanese faith in their own nation. I guess that deeply ingrained island nationalism explains why they still keep depositing in the state bank, though they get little or no interest and they know the government just takes their deposit and spends it on interest on the debt, while hoping somehow the global economy recovers and rescues all these deposits before more people ask for them back than are putting money in.

But how about those Irish? Anyone up for a betting pool on when the bailout is announced?

StychoKiller's picture

Time to win some FRNs on "Happy Smile Super Family Challenge Wish Show!"

"We don't reward intelligence, we punish ignorance."

Hephasteus's picture

Now you're central banker thinking. Smart people are too hard to steal from.

Confuse em and use em.

thegr8whorebabylon's picture

think Korean sub episode, rinse...

RagnarDanneskjold's picture

China denied it banned rare earth exports to Japan last week.

Kayman's picture

And China announced that Tiananmen Square was a gathering of hooligans.

palmereldritch's picture

It sucks for Japan to be hamstrung and tied to US-British-Saudi energy/currency dependency and watch China's economy emerge to its previous historical ascendency above Japan and face the further humiliation of lacking the military independence to thwart China's rush to consolidate direct resources stores in Africa and the ME and... to not have a central bank that is not sucker bait.

I guess that's what 20 years of currency deflation(sublimation) with 'friends like that' will get you.

Our next game show contestant is a man named Uncle Sam who says he can name that tune in less than 20 years...

Kayman's picture

I would not be surprised to find out that Japan has its own nukes, constitution notwithstanding.

To sit in harms way, depending on Uncle Sam, while China builds its military and nuclear strength, seems a tad bit implausible.

Commander Cody's picture

I would be surprised.  Japan has kept its promise not to develop nuclear weapons.  They are under IAEA supervison and have a spotless record.  Japan is happy to be under the USA's nuclear umbrella.  Because of that, they will not intentionally piss off the US.

Orly's picture

"...previous historical ascendency above Japan..."

This is the sick man of Asia you're talking about?  You do realise that their previous "economic dominance" over the region was in like 1138 BC?  Never did them any good because they tried twice to over-run that tiny island and failed miserably both times.

palmereldritch's picture

You are conflating economic dominance with militaristic feudalism.  Your perspective appears to be from the current US/UK post-imperial post-industrial military service (slave) Borg-hive experience and fails to recognize that economic success is not measured by privateer booty.

Japan’s dominance was acutely emergent in the mid 19th century mimicking the European imperial military powers courtesy of access to their capital.



China with its history of Confucian learning and meritocracy was the center of scientific and technological innovation for many centuries.


Today they have the past experience of empire building and the dominant economic engine of its time that delivered robust and stable economic development.  Further, this history combined with the best Western industrial innovations being strip-mined from their creators and transplanted to Chinese shores, an awareness of how the European fiat ponzi money scheme works and a burgeoning military to project their dominance and protect their gains and you have only Japan left fondly reminiscing about the fatefulness of long lost Divine Winds.





Debates about China’s Long-term Economic History

The pivotal point of the debate about China’s long-term economic history has been why and how China did not go any further from its premodern achievements. Opinions have been divided and the debate goes on (Deng 2000). Within the wide spectrum of views, some are regarded as Eurocentric; some, Sinocentric (Hobson 2004). But a great many are neither, using some universally applicable criteria such as factor productivity (labor, land and capital), economic optimization/maximization, organizational efficiency, and externalities.

In a nutshell, the debate is whether to view China as a bottle "half empty" (hence China did not realize its full growth potential by the post-Renaissance Western European standard) or "half full" (hence China over-performed by the premodern world standard). In any case, China was "extra-ordinary" either in terms of its outstanding performance for a premodern civilization or in terms of its shortfall for modern growth despite its possession of many favorable preconditions to do so.


suteibu's picture

As an aside, the current evolution of the Senkaku Island incident, is the refusal of the Japanese to apologize or pay compensation to the captain.  Japan is now demanding repair costs for the two Coast Guard boats hit by the fishing boat.

Chief Cabinet Secretary Sengoku says, "At the moment, the ball is in China's court."

This is Kan trying to save his administration.

RoRoTrader's picture

Big IF..........price at 84.25 and sitting right on top of the former DT resistance and so far support.

A break lower and next target 82.85 area.

Sakakibara maintains the line; Yen to 80 and likely to remain at that price for some time.

About the exchange; when China is buying record amounts of JGBs and driving the Yen up in the process making Japan's exports more expensive what's a fishing boat captain worth?

suteibu's picture

The structure of the BOJ is different than the US Fed in that the BOJ is part owned by the Japanese government.  It is difficult for Shirakawa to resist pressure, though, as you indicated, except for the Keidanren and their surrogates in the DIET, there's harldy a concensus for it.  The greater concern since the China row is to do everything not to piss of the US.  Besides, no one believes that the intervention would be more than a short term opportunity to weaken the yen so companies can bring home some profits.  But the Japanese companies, like those in the US, aren't bringing home anyway because of the capital requirements for expansion overseas.

One other thing that Shirakawa said is that he would not take "radical steps".

But he did not provide any hints on what policy options the central bank would consider appropriate. With the short-term money markets awash in cash and short-term rates held at extremely low levels ever since 1995, economists have argued that there are few conventional tools left.


One controversial proposal has been for the central bank to effectively monetize Japan's massive government debt, by far the largest among developed countries at nearly 200% of annual GDP.


The BOJ already purchases Y1.8 trillion of Japanese Government Bonds, or JGB, each month, but Shirakawa on Sunday dismissed the idea of a massive increase in this program. "Long-term yields could rise if (the JGB buying) is regarded as a sign that the BOJ is trying to finance fiscal spending," he said.


BOJ officials have long opposed the idea of increasing the size of the JGB buying operations because of worries that it could fan market concerns that the BOJ was handing the government a blank check to spend wastefully and could undermine the credibility of JGBs in the long term. (Nikkei-Dow Jones)

This is some of the pressure he might face as the Fed continues to pound the dollar at the expense of the yen.

Shirakawa also took note in the increasingly discussed idea of forcing the central bank into action through a change to the 1997 BOJ law that effectively gave the bank independence from the powerful Ministry of Finance.


The BOJ Law "enables us to pursue sustainable price stability in the mid- to long-term" as it also allows the central bank to contribute to economic developments, Shirakawa said.


A revision of the BOJ Law has been spearheaded by the small, but rapidly growing Your Party, one of the biggest winners in the July upper house elections and has recently gained more adherents, including some influential lawmakers in the ruling party.

Bruce Krasting's picture

"The greater concern since the China row is to do everything not to piss of the US.  a short term opportunity Besides, no one believes that the intervention would be more than to weaken the yen so companies can bring home some profits."

I think Sutiebu has answered the question and wins the Bonus Prize!



suteibu's picture

Happy to win...sad that it is so for the Japanese

MarketTruth's picture

Currency death spiral excellerates...

Money for nothing 'cause FIAT currency is free.

DB Cooper's picture

QE2 is the Fed's own form of currency manipulation.  How hypocritical can we be!  Makes me sick.

woolly mammoth's picture

Sorta but not. There is a difference in printing and spending against printing then buying anothers currency. One is stupid the other is kinda like a currency war which leads to trade war which leads to ......darn, I forgot. The Central Bank harmony from 2008 seems to be missing. 

Bruce Krasting's picture

About that Yen carry trade O, it only works when the dollar is strong. This market is death for the carry trade.

masterinchancery's picture

Your article prompts a thought; is this what happened to the gold market--it simply got too big for CB interventions to bbe successful in holding down the price.

Orly's picture


I'm outta control!

StychoKiller's picture

Watching too much "Giant Seizure Robots" again?

Orly's picture

There are many other dollars that pay interest.


doolittlegeorge's picture

BOJ governor resigned almost immediately as a consequence.  That might have been all the message that needed to be sent.  with commodities where they are on reflection i thought "this is really out there."  Actually the thought that Japan...or anyone else for that matter...would want to weaken their currency right now is "out there."  Save of course for the USA (???) which of course has as Marc Chandler so perfectly called it a "Dollar Heavy" policy.  Insofar as "politicians in the USA going after Japan" well...take a look at the Toyota coverage.  Sound of silence?  You bet.  These folks from the East have created an industrial powerhouse in the South and right under the noses of Wall Street no less!  Amazing.  Wise folks those men who speak slowly but have a determination to "get the job done and done right."  I thought it was quite a compliment when Mr Toyoda himself arrived in Lexington and got a standing ovation causing him to weep.  Probably not the way he was treated in China where he worked his way up to the top job.

Orly's picture

The Japanese know that they can do very little except jaw-bone and threaten.  Already seen is the futility of such efforts by example of the Swiss.

All the extremes in 4X are but temporary conditions and sentiment will change en masse eventually.  Patience is on order for the Japanese here and they are in a very good positon to weather the storm.  The Japanese are very well positioned as global buyers of materials and labor, having plants all over the world making all kinds of things and buying mostly local stuff.

I am sure they have accounting people and bankers who can maximise the locality of operations, so in many ways, the effects of the stronger yen on Japanese exports is offset by purchases in local markets.  As long as the yen carry is alive, their traders are happy.

About war, though- who can know?  My expectation would be a massive flight to the USD for safety.