Bloomberg News

Japan Can’t Stop Yen Advance With ‘Covert’ Sales, Analysts Say

November 13, 2011

Nov. 11 (Bloomberg) -- Any continued yen sales by Japan is unlikely to weaken the currency further after last month’s intervention, analysts said, as Europe’s prolonged debt crisis bolsters demand for a haven.

Finance Minister Jun Azumi today declined to comment on whether the nation has been selling yen this month after an intervention on Oct. 31 that analysts estimate amounted to a record 8 trillion yen ($103 billion). The nation may have continued to sell about 1 trillion yen from Nov. 1 to Nov. 4, according to Totan Research Co. based on its analysis of the Bank of Japan’s current-account balances and holdings of government bonds.

“I think Japan actually intervened intermittently,” said Takahiro Sekido, who worked at the BOJ for more than a decade before becoming chief Japan economist at Credit Agricole in Tokyo. “Unless global fund flows change from risk aversion, I think it’s hard for intervention alone to put the yen on a weakening path.”

The BOJ’s current-account balances typically gain two days after foreign-exchange intervention because banks that bought yen deposit the funds into accounts at the central bank, according to Totan. The BOJ’s holdings of government bonds also rise because the Ministry of Finance sells financing bills to the central bank to get intervention funds.

Over the four business days ended Nov. 8, increases in the current-account balances were 8.6 trillion yen more than the estimate Totan had made before Oct. 31, said Yuichi Takahashi, a market economist at the Tokyo-based money market brokerage. Considering the BOJ’s holdings of government debt jumped 9.09 trillion yen during the period, there is a “high” likelihood that interventions were conducted, he said.

Fewer ‘Options’

The yen gained in early trading on Oct. 31 to 75.35 per dollar, a postwar record. It tumbled as much as 4.7 percent from the previous close to 79.53, the steepest intraday drop since October 2008, after Azumi told reporters he ordered intervention. It’s trimmed losses since then and traded at 77.55 as of 2:43 p.m. in Tokyo.

“Even if there have been covert interventions, as the BOJ deposits data suggest, the downside risk is increasing for the dollar-yen,” said Junichi Ishikawa, an analyst in Tokyo at IG Markets Securities Ltd. “Japan’s authorities are running out of options to weaken the yen.”

The yen resumed gains as rising borrowing costs in Italy stoked speculation Europe’s debt crisis is spreading from Greece to bigger nations. The currency may remain at 77 per dollar until the end of March 2012, according the median analyst estimate compiled by Bloomberg.

“My impression is that appreciation pressure for the yen is gradually increasing,” said Yunosuke Ikeda, head of Japan foreign-exchange research at Nomura Securities Co..

Kokusai Sales

Kokusai Asset Management Co.’s Global Sovereign Open, Japan’s biggest mutual fund, has cut by almost half its holdings of Italian government debt to 6.6 percent of its $26 billion portfolio over the past 12 months, a report from the fund showed last month. The fund has more than doubled the portion of Japanese bonds to 15 percent, the report showed.

Japan can’t use “stealth intervention” every day as it may attract criticism from trading partners such as the U.S., said Tomoko Fujii, a senior foreign-exchange strategist at Bank of America Merrill Lynch in Tokyo.

“If the intervention helps stem the yen, that could alleviate the degree of deflation temporarily,” Fujii said. “Intervention is not a permanent solution if fundamentals are against that direction.”

--With assistance from Saburo Funabiki, Monami Yui and Andy Sharp in Tokyo. Editors: Rocky Swift, Benjamin Purvis

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Hiroko Komiya in Tokyo at hkomiya1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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