On Friday, we saw declines in #USDJPY, probably caused by BoJ intervention. We do not know for certain whether this was a coordinated action by the BoJ, Fed and ECB, or merely a reaction to the second stage of intervention, known as a ‘rate check’.
A ‘rate check’ by the BoJ (Bank of Japan) is a colloquial term for a situation in which the central bank probes the market before a possible interest rate change, instead of announcing its decision immediately. The BoJ checks how the market would react to higher rates, usually by: asking banks and dealers: at what rates they lend money, what level of bond yields is ‘acceptable’, observing market liquidity and reactions to small movements in yields.
This is a kind of probe: ‘If we allow rates to rise a little, will the market withstand it without panicking?’
On Friday, it could be suspected that the main intention was to cause uncertainty among investors with short positions on the yen, taking advantage of positive SWAPs, i.e. using “carry trading”. The declines in USDJPY were significant, and on the weekly chart we can see a second consecutive week of decline on the MACD.
So whether it was technical intervention or just panic among short position holders, the effect is what the BoJ and the Japanese government expected.
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