Japan At War With Markets (I) - Anatomy of Yentervention Week
Part 1: A comprehensive breakdown of Yentervention “Week” 2024 via green & red blinking tickers, why MOF's efforts are not working to stem JPY↓, and what this means for JPY and broader markets.
After a year and a half of bellicose rhetoric, attempted alliance building, and further boundary pushing, Japan was forced to resume its JPY forever-war against markets - a war that Japan itself had started in September 2022. Two sneaky shots fired off by Ministry of Finance directly at USD on two instances last week.
Monday April 29th, the start of Golden Week holiday with Japan markets closed:
USDJPY surges to 160. Ministry of Finance (MOF) steps into markets for the first time since October 2022 and blasts USD / buys JPY for yentervention. USDJPY drop to 154. But after the initial dust clears, USDJPY resumes its autopilot tip-toe higher and eventually (within a day and a half) climbing back above 157.
Thursday May 2nd, Post-FOMC:
5AM Tokyo, moments after Fed Chair Powell FOMC press conference ends, MOF fires off a second round of yentervention for the week, dropping USDJPY from 157 to 153 in under an hour.
Meanwhile, Finance Minister Suzuki, Vice Minister Kanda and the Japanese government refuses to neither take nor deny responsibility for the act, so we will have to wait until later this month for the data release and any official statement- one that might read as:
“Japan is NOT at currency war. This is a Special Monetary Operation…”
Within a Japan holiday shortened week - USDJPY came swinging out the gates on Monday morning hitting 160, and ended the week with a 151-handle low print following U.S. payrolls data released on Friday night in Tokyo to wrap up a wildly erratic reversal in directional trend.
Yet, despite JPY’s 5-day, +5% rally, thanks to some ¥9 trillion worth of direct buy support across 2 yenterventions by MOF, the yen still remains the world’s worst performing currency in 2024, down some -8% YTD (±3% depending on the day/hour).
USDJPY new trading range: 152 / 160
Gone are the days of a 152 hard ceiling on USDJPY that had been set by the prior round of yenterventions back in September and October of 2022 - a once formidable market-self-fulfilling resistance level that had unnaturally and very visibly capped further upside to USDJPY, holding the yen from printing new 3-decade lows for a year and a half. And when that 152 level was finally breached on April 10th 2024, USDJPY found itself with a 160-handle by month end- effectively resetting the new trading range at 152 as the new support level, and a +5% higher resistance at 160.
Although trading range recalibration from a 152 ceiling to now a 152 floor / 160 ceiling on the spotlight global macro market of the year is quite significant with widespread global ramifications - it is a chapter within the big picture JPY and global macro story. And I will elaborate on the broader macro market story in the follow up article, which is about the world’s most significant global capital flow and markets shift in a generation (or more), but is somehow being completely missed:
Mass capital flight from the world’s largest ocean of hoarded, saved, “haven-ized,” bank deposited (and mattress-stored), unused and most importantly- extremely heavily relied upon for present and future livelihoods cash pile: the Japanese yen.
Exchange rates never mattered before for the regular person in Japan - and I don’t (just) mean exchange rate for USD or euros or what have you - I mean the very basic concept of exchanging money for goods and services - because as far as entire generations of Japanese know, prices never ever go up. So why would anyone ever need to even think about fluctuations in purchasing power, or store of future value? They wouldn’t. Until they do. And now they are. Because a very strange and frankly uncomfortable / horrific phenomenon is occurring: inflation.
Japan households own more than ¥2 quadrillion in financial assets (¥2 quadrillion = ¥2,000 trillion, or $14 trillion USD) - more than half of which is in cash: over 1.1 quadrillion JPY. Meanwhile, the percentage of household assets in stocks is 13% (which is still 273 trillion JPY worth). This cash/stock allocation is more or less the mirror inverse of the U.S. household, who has 12% of assets in cash, or far more than other developed economies’ household holdings of cash in their respective currencies.
Why? Because of a culture of heightened risk aversion and financial conservatism - i.e. responsible savings.
“I don’t invest because I don’t want to lose money.” -everybody🇯🇵
What happens if and when the very “asset” that’s supposed to be “not in the market to lose” and instead is supposed to be the safe, long term responsible play suddenly (or gradually) becomes an extremely overweight / concentrated “long” that is deteriorating by the day? Or the hour?
Well, that part is already well underway - the actual deterioration part. The realization and sentiment shift part - that’s only just begun, but begun it has.
Capital flight from JPY is extremely consequential to global markets, probably more so than anywhere else (including the US, not that such a thing would occur in the world reserve currency that other currencies would be immune from and be the inflow beneficiary of) - simply because of how much JPY Japan holds, and why they purposely hold such a large percentage of it.
And no, this is not a doom and gloom story from a pure markets perspective (unless you’re a long term Japan resident and/or have this “long JPY safety” position) - nor does it mean all $7 trillion worth of JPY will be reallocated, nor done overnight. But it doesn’t need to be to make significant market impact. If Japan households bring their cash levels down to being just double where the 13% American household cash allocation level is, that’s roughly $3.5 trillion of capital flooding into various global markets. Not only is that a lot, but any amount is more than your mainstream economist or central bank is accounting for, let alone even realize it’s very existence.
So that’s for the next one. But before we get there, we need to take a detailed look at what Japanese officials are doing (and not doing) to combat the downfall of the yen - because that broader, big picture story ultimately hinges on, and is reflected by one thing: the price direction and behavior of green and red blinking ticker JPY.
Part 1: Breaking Down Yentervention “Week” 2024
The reason I put “Week” in quotes is because this may very well continue, or it very well may not, but either way, we are still in the midst of yentervention activity - it doesn’t end just because the week has ended. For all we know, this was just week 1 of what may ultimately become “Yentervention Month.” Or “Yentervention Year.”
Furthermore, acts of yenterventions do not necessarily have to be in consecutive succession of time intervals. But I will refer to this past week as “Yentervention Week” for the purposes of this article in the era of modern yenteventionism (with 2022 being the only other round of yentervention as we know it- and those market meddlings were separated by a month, not two crammed into the same week), as we reflect upon yentervention activity on Monday April 29th and Wednesday May 1st of this insane week in JPY.
Let’s examine the green and red blinking tickers of JPY by day.
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