Trading Forex topic of the day – Feb 03 2012.

Is BOJ intervention likely?

Here a couple of recent Reuters quotes regarding ongoing sabre-rattling by various Japanese bureaucrats:

Feb 3 (Reuters) – Japanese Finance Minister Jun Azumi on Friday warned investors against pushing up the yen and vowed to act decisively against speculative and one-sided moves in foreign exchange markets.
Azumi, speaking to reporters after a cabinet meeting, said speculative yen-buying had gathered strength since last week due to lower U.S. interest rates.
He added that he was strongly concerned about whether the “one-sided yen rise” reflected economic fundamentals.

Feb 2 (Reuters) – Japan’s finance and economic ministers piled pressure on the Bank of Japan on Thursday to consider easing policy further, as the yen climbs back to levels that led to Tokyo to intervene heavily in currency markets last year to protect its export-reliant economy.
BOJ Deputy Governor Hirohide Yamaguchi said he saw no need to ease policy right away, but the central bank could face growing calls to offer more monetary stimulus to help exporters through any prolonged slump, even though it has limited options remaining to support the faltering economy.
“Yen buying has strengthened, led by short-term and speculative moves on the back of expectations for low interest rates in the U.S. until 2014,” Finance Minister Jun Azumi told lawmakers.
“I would like the BOJ to take account of economic conditions and various factors in deciding policy, including quantitative easing.”

If you trade JPY you probably know that so-called “open” BOJ interventions can significantly increase intraday volatility of the yen pairs for one or two trading sessions. Just look at the daily USD/JPY charts for the last several month of 2011. This knowledge can be exploited by traders with knowledge of how to trade the news “conservatively.”

But, of course, how likely are chances of BOJ open intervention at this time. In our opinion the chances are fairly small at this level for an open intervention. But if yen will continue to appreciate against the dollar this can change very quickly. At the present levels so-called “stealth” interventions are more likely.

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