Estimating the Scale of Japanese Foreign Exchange Intervention
Japanese FX intervention has been in the news a lot lately, as the yen's depreciation has prompted Japanese authorities to step into markets multiple times over the past two years to prop up the currency. According to media reports, the Japanese Ministry of Finance and the Bank of Japan likely intervened this past Thursday, July 11, after the release of surprisingly soft U.S. inflation data, causing the yen to jump to almost 157 JPY/USD from nearly 162 JPY/USD. Official data to confirm whether intervention took place won't be available until 31 July, so here's how you can estimate the scale of the intervention using BOJ accounts and money market broker forecasts.
Pinpoint the dates
Interventions conducted in spot transactions settle two business days later. Assuming the last intervention took place late on Thursday, 11 July, the next business day would be Tuesday, 16 July, since Monday, 15 July, was a public holiday in Japan.
Check money broker forecasts
Check money broker forecasts for interbank liquidity due to fiscal factors (財政) on the settlement date. University of Tokyo Professor Hattori Takahiro provides a summary of forecasts from the three main money broker firms:
- Ueda Yagi: 200 billion JPY
- Central Tanshi: 400 billion JPY
- Tokyo Tanshi: 500 billion JPY
Note that the figures are typically stated in hundreds of millions (億円). Calculating the average for all three firms, we get a 367 billion JPY surplus.
Check BOJ figures
Check BOJ figures for changes in interbank liquidity due to fiscal factors (財政等要因) on the settlement date. The BOJ reports these numbers in three stages: a forecast one business day before the settlement date, a tentative number on the settlement date, and a revised number one business day after the settlement date. The current forecast for Tuesday, 16 July, is a 3,170 billion JPY deficit, as detailed here.
Calculate the difference
To estimate the scale of intervention, calculate: BoJ figure – Money broker forecasts = Estimated scale of intervention
Using the data above, we get: -3,170 – 367 = -3,537 billion JPY.
In other words, the Japanese MOF and the BOJ likely spent about 3.5 trillion JPY on intervention to prop up the yen, which corresponds to about 22 billion USD. This matches the figures given by Bloomberg, Nikkei, and Professor Hattori.
Update (10 August 2024): The latest BOJ data, both tentative and revised, now show a deficit of -2,960 billion JPY. With this adjustment, our estimated scale of intervention lands at -3,327 billion JPY.
Links
- Official MOF data reporting FX intervention can be found here or here (Japanese)
- The release schedule for official MOF reports can be found here (Japanese)
- The BoJ reports sources of changes in its current account balances here (Japanese)
- Daily Ueda Yagi money market broker reports can be found here (Japanese)
- Daily Central Tanshi money market broker reports can be found here (Japanese)
- Daily Tokyo Tanshi money market broker reports can be found here (Japanese)
- Asahi TV post on Twitter highlighting the suspected intervention