Taisuke Tanaka, Strategist at Deutsche Bank, suggests that MoF has long maintained that as the yen is a major currency alongside the dollar and euro, forex market intervention should be avoided as much as possible. Key Quotes “Nevertheless, it did undertake a unilateral intervention on three occasions in 2010-11 (in addition to coordinated intervention action in March 2011), thought to be at the behest of the then-ruling Democratic Party. The present LDP administration may also push for an intervention. A slump in the USD/JPY below ¥100 could spark a stock market downturn, which could severely harm the credibility of Abenomics prior to the Upper House election in July. We expect authorities to intervene in forex markets if the USD/JPY falls to the ¥105-110 range. US Treasury Department officials have recently warned against a currency war. We believe that any intervention by Japanese authorities would aim not at raising the USD/JPY rate significantly but at maintaining it at around ¥110. Non-sterilized intervention by the BoJ would help its QE scheme and should be possible in the case of a large-scale intervention. However, speculators and hedgers tend to sell actively on comebacks in a riskoff climate, and neither intervention nor monetary easing by Japan can achieve a sustained boost in the USD/JPY. Japanese authorities are well aware of this but may come up with some sort of intervention tactics to meet the demands of the government. Let us look back at three recent cases of forex market intervention. Authorities carried out a ¥2.1trn dollar-buying intervention on 15 September 2010 to prevent the USD/JPY from sliding below a then-unprecedented ¥80. The currency rebounded from ¥83 close to ¥86, where it remained for some days. Japanese hedgers were able to sell a substantial volume of dollars at that level. On 4 August 2011, exporters and other hedgers were becoming increasingly nervous as the USD/JPY threatened to drop below ¥75. MoF carried out a ¥4.5trn intervention that triggered an immediate jump from ¥77 to ¥80. The authorities themselves may feel they were successful when the rate hit ¥80, but exporters hoping for a further rise missed the chance to sell dollars. The USD/JPY sank ultimately to just around ¥75 on 31 October 2011. MoF's intervention buoyed the rate back to ¥79, which held for some time. This indicated that the ministry had no intention of further action to bring this to ¥80, encouraging hedgers to sell at ¥79. Intervention over those several days came to ¥9.1trn.” For more information, read our latest forex news.