Japanese authorities likely stepped into foreign exchange markets during the recent Golden Week holidays to support the yen and to prevent a rapid depreciation should the currency fall below the 160-per-dollar threshold, according to Atsushi Takeuchi, a former central bank official who took part in Tokyo's interventions about 10 years ago.
Takeuchi told Reuters that while the Ministry of Finance (MOF) does not intend to rigidly defend any single numerical level, action was probably taken to avert a steep selloff that might quicken once the yen breaches 160. That level has acquired psychological significance among market participants, he said, and required authorities to translate rhetoric into action so as not to appear tolerant of further declines.
Authorities may also have been reacting to signs that Japanese government bonds were being sold in tandem with the currency, Takeuchi added, which could be an early indicator of broader "Japan selling." He noted that the yen no longer functions as a safe-haven currency in crises the way it once did, and said that, speaking from the perspective of a bond trader, he would avoid buying Japanese government bonds given Japan's loose fiscal policy.
Market-derived money market data point to intervention on Thursday last week, with those figures indicating roughly $35 billion was sold in order to prop up the yen, sources said. Following that activity, trade has shown bouts of volatility: over the Golden Week holidays and through Wednesday the market recorded three abrupt yen rallies, at one point moving as strong as 155.00 per dollar. The currency was trading near 156.30 per dollar on Thursday.
The picture painted by Takeuchi emphasizes two linked market dynamics cited by officials and observers - the psychological importance of the 160 mark for traders, and the possible correlation between pressure on the yen and concurrent selling of Japanese government bonds. Taken together, those elements appear to have prompted authorities to intervene during a typically quiet holiday period in order to demonstrate they would not simply stand aside as the currency slipped lower.
Context limitations: The observations above reflect Takeuchi's assessment and the market data referenced. Officials have not stated they will defend a fixed threshold, and the reporting is based on the comments and the money market estimates cited.