Japan Returns to 'Stealth Intervention' Tactics

Since we once more encountered Japanese intervention to drive down the value of the mighty yen in September of 2010 after a hiatus of about six years, there has been a pattern in place. Tha Bank of Japan makes a big announcement concerning market volatility or the unduly strong yen. In turn, this is followed up by the BoJ wading into the spot market, selling yen and buying dollars in a major way to achieve an implicitly desired dollar/yen level.

Let's just say that this has not been an approach that has yielded sustainable results from the Japanese point of view. Forex traders have learned to wait the BoJ out insofar as its recent efforts have been one-day wonders not backed up by subsequent dollar buying. It appears though that Japanese officials are returning to what they hope are subtler, more effective tactics. That is, the past week has not seem any dramatic BoJ denunciation of forex market evils accompanied by massive intervention. Instead, it is more or less keeping silent to not give away timing cues. Plus, intervention is not a one-shot deal but a continuing effort dubbed 'stealth intervention' said to be similar to the 2004 campaign:

Japan's stealth intervention replicates an approach employed in the massive yen-selling intervention in 2003-04 that totaled about ¥35 trillion, or about $450 billion at today's exchange rates. But the new use of the tactic caught market participants off guard because many believed the latest intervention was a one-day operation.

To maximize the impact and preserve secrecy, the Finance Ministry and Bank of Japan select a limited number of private banks for intervention in the direct deals, refraining from electronic trading systems such as EBS. The designated banks were cautioned by authorities not to leak the information outside.

Sworn to secrecy, Japanese banks facilitate the deed clandestinely so as not to reveal BoJ presence on forex trading platforms. While the Japanese hope that keeping things under wraps results in a more tolerable USD/JPY exchange level for exporters, it too probably wishes that it won't collect as much opprobrium from fellow G7 members. Why is one of their own setting a bad example when global 'rebalancing' is supposedly being encouraged, especially among G20 emerging economies?