Reference News Network, January 27 report: According to the website of the "Nikkei Shimbun", on Monday (26th), the Japanese yen quickly rose to the range of 154 yen per US dollar. On Friday (23rd), rumors about the Japanese and US governments conducting a "currency check" made algorithmic trading, which is executed by computer programs, extremely sensitive. A currency check refers to the government asking the market about exchange rates, usually a prelude to the government taking measures to intervene in the foreign exchange market. Compared to the low point of 159 yen per dollar set in Tokyo markets on 23rd, the yen has risen nearly 5 yen.
If the US Treasury actually conducted a currency check directly or through the New York Federal Reserve, it would imply that it may have been at Japan's request or part of a joint intervention between the US and Japan. The last joint intervention between the US and Japan was in 2011, but then both countries were selling the yen. In the joint intervention in 2000 to buy euros, Japan and the US each sold their own currencies. A joint intervention by the US and Japan to buy the yen and sell the dollar, similar to the previous one, can be traced back to the 1998 period when the yen was depreciating.
Intervening in the foreign exchange market by selling domestic currency is not restricted in terms of funding. On the other hand, purchasing domestic currency with foreign currency has certain limitations. However, Japan has huge foreign exchange reserves, and if the US government also joins in selling dollars, concerns about funding will be eliminated. A manager of an Asian hedge fund analyzed: "Whether this will happen or not remains to be seen, but the active actions of the US government are not expected by algorithmic trading, which led to a more significant reaction in the yen buying."
Some market participants speculate that the US's "front" may not be limited to Japan, but could extend to South Korea. Recently, US Treasury Secretary Bensinger made remarks implying that the depreciation of the Korean won does not reflect economic fundamentals. The South Korean government is vigilant about the trend of the won's depreciation. If the US and South Korean governments align their steps, it is likely to also support the yen.
Analysts pointed out: "The market has concerns about Japan's fiscal risks. The government of Hayashimoto seems to place importance on sending messages to the market, increasing explanations on how to secure funds after implementing tax cuts. This may be expressing a determination that Prime Minister Hayashimoto and Finance Minister Koyama replace the ambiguous Bank of Japan to directly face market issues. US Treasury Secretary Bensinger also understands the intention of the Hayashimoto government, and their first step (if any) would be the currency check on the 23rd."
In the currency options market, which predicts future exchange rate levels, investors' anxiety is evident. Before the rumor of the Japanese currency check spread, the expected volatility of the yen for a period had remained within the range of 8% to 9% annually, but in the New York trading session, this number rapidly climbed to around 13%. The price of call option contracts (the right to buy the yen) also rose significantly.
It is difficult to predict whether the Japanese government will enhance its posture of buying the yen to intervene in the foreign exchange market when the yen depreciates further. How much support will the US provide? These are all uncertain. What can be said now is that the possibility of US-Japan joint intervention has become a "sensitive word" embedded in algorithmic trading, and this situation that suppresses the yen selling is expected to continue for some time. (Translated by Ma Xiaoyun)
Original: toutiao.com/article/7599961132829114880/
Statement: This article represents the views of the author.