With the USD/JPY hitting yet another post World War II low of 75.73 overnight, the chatter and speculation around possible intervention is very high.
Japanese Finance Minister, Jun Azumi, has been busy telling reporters about the possibility of intervention and has instructed his staff to make preparations for action in response to further declines in the yen. While a good part of recent Yen appreciation has to do with the euro zone sovereign debt crisis and slowdown in the US, Mr. Azumi has called the moves speculative and not reflective of underlying fundamentals.
We have seen in the recent past that's solo intervention by Japanese authorities has not stuck (the big blue candle in early August for instance) and there are reports the Japanese authorities have been talking to other countries in regards to either coordinated action or to lay down the groundwork for unilateral steps.
With their own economies in trouble European and US leaders are not likely to be receptive to Japan weakening its currency to help its exports.
The US for its part has been able to weaken the dollar by using quantitative easing, which is something we should be on the lookout for in the Bank of Japan's meeting on Thursday.
The expectations is that central bank policymakers may expand their asset purchase program from its current ¥50 trillion ($657 billion) and Mr Azumi has called for such actions in order to help battle the Yen crisis.
From Reuters: The Bank of Japan is likely to debate easing monetary policy further at a meeting on Thursday after the yen rose to a record high and doubts mounted over whether Europe can forge a clear plan to tackle the euro zone debt crisis, sources said.
If the central bank acts, it will likely expand its 50 trillion yen ($660 billion) asset-buying program by around 5 trillion yen, sources familiar with the bank's thinking said.
BOJ Governor Masaaki Shirakawa, however, said the central bank was already buying massive amounts of government bonds to keep monetary conditions ultra-easy, countering views it was not doing enough to support the economy and suggesting that an easing on Thursday was hardly a done deal.
However, further expansion of the central banks balance sheet in order to buy government and corporate securities has not necessarily had the same impact on the yen as it has on the dollar. Therefore, even expectation of more QE from the the BOJ has not really helped ease the strengthening bias of the yen.
Japanese Authorities Watching EU Summit
Interestingly enough it may be the actions of the Europeans at their summit today which have a bigger impact on Japanese currency. If there is a plan put forward that embodies a solid resolution the pressure on yen crosses to move in favor of the yen may ease, mitigating the need for intervention. However, if the resolution is not to the markets liking and we see a move towards safe haven currencies like the Japanese yen the possibility of intervention becomes greater.
In terms of actual levels the ¥75 mark will set off alarm bells in the Ministry of Finance.
We therefore await the final package from the EU Summit to be presented today, look forward to the Bank of Japan monetary policy decision on Thursday, and watch the USD/JPY pair for a move to that ¥75 price level as our key factors in anticipating any possible intervention.