Citi Believes BOJ Will Intervene At USDJPY 76, Says Any Intervention Will Likely Be Insufficient

With everyone and their mother now expecting the BOJ to do absolutely nothing courtesy of Noda's now hourly announcements that he is watching the JPY like a hawk, or simply a confirmation that the Japanese central bank is as toothless as the SNB (EURCHF at 1.0952 at last check) to do much if anything, here is Citi's Osamu Takashima, who writes that the BOJ will intervene at a level of 76 on the USDJPY or about 9500 on the Nikkei. Bloomberg All News summarizes the highlights of his note.

  • Possibility of BOJ intervention is much higher if Nikkei and USD/JPY falls to 9,500 and 76, respectively
  • Last 2 BOJ interventions in September 2010 and March 2011 didn’t benefit Japanese exporters as much as margin FX investors, aka Mrs. Watanabe
  • Rough calculations show FX margin players may be holding about 2.8t yen or $36b in short-yen positions
  • BOJ/MOF would need to intervene at least 3t yen or $38b to help Japanese exports

And the reason why another BOJ intervention will need the entire G-7 complex to step in again like they did in March:

  • Japanese exporters keen to sell USD/JPY at 80 level
  • Solo BOJ intervention may lift USD/JPY by only 3 big figures; thus if BOJ intervene around 76, it’s insufficient to reach 80 level targeted by exporters

We believe that selling into any USDJPY strength is the trade here as any 100 pip or so bounce will be promptly sold by the market following the realization that such (un)sterilized interventions now have a half life of a few hours max.


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