BOJ may get a lot less bang for their bucks
Oct 24 (Reuters) -Should Japan's central bank intervene to support the yen it may have to sell far more dollars to achieve the same results as in prior moves.
The law of diminishing returns has clearly applied to the process of intervention to support the yen, with the record size of dollar sales in 2022 far exceeded by those this year which had much less effect.
Where intervention in 2022 led to a 23 yen rise, the yen proved much more resilient when it rose roughly 8 yen after 62 billion dollars were sold in July.
The currency only rose further after the Bank of Japan raised interest rates and laid out its plans to tighten more at the end of July, which caused a risk-averse shock that drove stocks much lower and led to a purge of yen-funded carry trades.
Stocks have since rebounded and the yen, which recently dropped below 153 versus the dollar, has given back the gains that followed July's BOJ meeting.
When the BOJ sold dollars in the past, traders were betting heavily on the yen falling. Until recently they were gambling that the yen would rise. Without speculation to counter, any move to support the yen will be less effective.
At 2.8 trillion yen, the intervention in September 2022 was far eclipsed by the almost 10 trillion spent in July this year, and with no yen shorts to squeeze, an even bigger spend may be needed to boost the Japanese currency significantly.
Japan's seemingly ample reserves of almost $1.1 trillion could be rapidly diminished, and should that happen without sustaining a yen rise - likely given Japan's very easy monetary policy, it could spur on a run on the yen.
South African Rand could be new darling of carry trades nL1N3M00CT
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(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)
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