The BOJ and MOF are very active participants in the FX markets. That is, they have a lengthy history of entering the FX markets if they are dissatisfied with the current JPY level. As Japan is a very political economy, with close ties between government officials and principals of large private institutions, the MOF has a very narrow segment in mind when it decides to depreciate a strong JPY. Since the BOJ is such an active participant, it is very much in tune with the market's movements and other participants. Periodically the BOJ receives information on large hedge fund positions from banks and is likely to intervene when speculators are on the other side of the market, allowing them to get the most bang for the buck. There are typically three main factors behind BOJ and MOF intervention:
1. Amount of appreciation/depreciation in JPY. Intervention has historically occurred when the yen moves by seven or more yen in less than six weeks. Using the USD/JPY as a barometer, 7 yen would be equivalent to 700 pips, which would represent a move from 117.00 to 125.00. (See Figure 10.5)
2. Current USD/JPY rate. Historically, only 11 percent of all BOJ interventions to counter a strong JPY have occurred above the 115 level.
3. Speculative positions. In order to maximize the impact of intervention, the BOJ and MOF will intervene when market participants hold positions in the opposite direction. Traders can find a gauge for the positions of market participants by viewing the
International Monetary Market (IMM) positions from the CFTC web site at www.cftc.gov.
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