Short-term currency interventions of this type rarely succeed. Despite the intended manipulation, fundamentals tend to rule the day. As we’ve seen during past currency interventions the impact rarely lasts long. I highlighted this in real-time last October after the BOJ intervened and the Yen quickly rebounded. Standard Bank has noted the poor history of interventions:
“The history of past interventions is not good. Japan did manage to haul dollar/yen up from these sorts of levels in 1995 but that was with the help of the U.S. — and this seems unlikely right now. Intervention in isolation has tended to be a much more hit and miss affair. The last bout of significant intervention (35 trillion worth) in 2003 and early 2004 barely made dollar/yen budge … The market knows this, and so does the Japanese finance ministry and the Bank of Japan. If similar intervention now could just hold dollar/yen above 80 (yen) it would be a start but … the market soon gets used to intervention. It does not take the market long to realize that the best way to trade dollar/ yen during bouts of intervention is to sell it straight after the Bank has finished intervening.”
Is this time different? Doubtful, however, the approach is certainly a bit more sneaky. This coordinated approach is being done in secret so as to keep traders on their toes. CNBC explains why this intervention could have more success than in the past:
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.