Today, the JPY strengthened across the board following a verbal intervention from the Japanese Minister of Finance Katayama. These moves generally just provide pullbacks for traders to sell the JPY at better levels as long as the conditions for further yen weakness persist.

I thought about making a cheat sheet on JPY intervention. It generally includes three stages: the verbal intervention (jawboning), the rate check and the actual market intervention.

STAGE 1 – VERBAL INTERVENTION (JAWBONING)

The first stage is the verbal intervention, also called jawboning. The goal is of course to influence the market without actually taking action. This is done to slow down or smooth excessive or rapid exchange rate moves as they are undesirable. It’s primarily the Japanese Ministry of Finance (MoF) issuing these warnings because they hold the legal authority for currency intervention, not the Bank of Japan (BoJ). The comments generally reflect the sense of urgency, so they also come in stages.

The most common phrase is “we are closely watching the exchange rate moves”. This is generally said by lower level MoF officials or BoJ officials. It has low impact on JPY.

This is when the Minister of Finance or the top currency diplomat says things like “closely watching FX moves with a high sense of urgency” and “we are seeing rapid one-sided yen moves”. This generally give the JPY a boost but again it’s not enough to reverse a trend as long as the conditions for further yen weakness persist.

This is the final stage of verbal intervention where the Minister of Finance or the top currency diplomat says things like “we are ready to take decisive action” and “we are communicating with our counterparts in the US”. This is when the yen strengthens considerably across the board as market participants scale back their bets fearing an intervention.

STAGE 2 – RATE CHECK

This generally precedes the actual intervention. It’s the strongest non-physical intervention. It doesn’t assure an actual market intervention as it could still be used just as a threat, but it’s the very final warning. You will generally see headlines like “the BoJ (or a high level MoF official) is checking rates with banks or dealers”. This causes big spikes in the yen.

STAGE 3 – PHYSICAL INTERVENTION

This involves the actual buying or selling of yen in the FX market to influence its value. The intervention is authorised by the Minister of Finance (MoF) and executed by the Bank of Japan (BoJ) which acts as the agent. There’s no warning here, it can happen anytime to maximise the surprise effect and shock the market.

It generally happens when USD/JPY hits or breaks some significant round number. For example, last year we got a couple of them around the 160.00 handle, and in 2022 we got one around the 145.00 level and another around the 150.00 handle. The confirmation of the intervention comes later.