From the FT's Lex blog
Monday's currency intervention from Japan's Ministry of Finance was a classic one-two punch. First, on a hazy, unusually warm morning, shake off the stupor with about ¥3,000-billion in yen selling. Then, before traders can set down their lattes, put up finance minister Jun Azumi to say something to the effect that there's a lot more where that came from.
After a manic couple of hours, the dollar/yen rate was beaten up to 79.20, almost 5 per cent weaker on the day.
Mr Azumi was right that speculators seemed to have got the upper hand. In recent weeks the yen/dollar rate had broken away from its most dependable trading partner for the past year: the yield gap between 10-year U.S. Treasuries and 10-year Japanese government bonds.
The U.S. economic outlook had improved, in other words, but the yen had not been sold to reflect that. Monday's movement swiftly made up that gap, with a little extra for good measure. The Bank of Japan, too, had done its bit last week, easing monetary policy a little while noting an "adverse effect" from the strength of the yen.
What was missing, though, was a sense of alarm. The dollar/yen had recently settled into a pretty narrow trading range, as had most of the yen crosses. The Nikkei was climbing. Corporate treasurers will surely thank the MoF/BoJ double-act for allowing them a window to exchange piles of dollars for yen at better rates.
But the market had settled into a comfortable consensus that will be difficult to overturn, especially if the U.S. Federal Reserve this week refrains from ruling out a further big round of quantitative easing. It was notable that data last week from the Chicago Mercantile Exchange showed long positions on the yen pushing historical highs, even as the dollar/yen spot rate plumbed record lows. The steady decline in late Tokyo trading confirms that this fight is not over -- not by a long shot.