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The Japanese have finally done it! Yesterday, I wrote that “even if Kan was not actively considering physical intervention to weaken the Yen before the elections, he will have warmed to idea when he wakes up in the morning and finds USD/JPY trading below 83.”
Warming to the idea was apparently an understatement as Kan woke up and decided that they have finally had enough and now is the time to intervene in the Yen. Prior to the DPJ elections I said Kan may intervene in the Yen to quiet local criticism and secure his job as Prime Minister. However I am clearly not a savvy politician as the smarter political move was for Kan to wait. With the DPJ elections now behind us, Kan’s government was able to intervene without it appearing to be a desperate move to hold onto his job.
Now that the central bank has intervened, the next question is whether their intervention will be effective and I believe it will – at least for the next few days. The reason is because this is a very monumental move. After crying wolf for the past few months by spewing out empty threats, the Japanese government has finally pulled the trigger. As you have seen today, USD/JPY had a violent reaction that certainly shook out a large number of shorts. This will make speculators more reluctant to load up on short USD/JPY positions going forward particularly since the government has threatened to intervene again if USD/JPY resumes its rise. Don’t forget that the Japanese government has MUCH deeper pockets than the SNB and the RBNZ who have also intervened in recent years.
In October we will find out exactly how much the Japanese government spent.