The traditional dynamic in foreign-exchange intervention, in which authorities buy yen while speculators sell yen, is beginning to change. We examine why speculators temporarily shifted to selling US dollars and buying yen from September onward, and how the relationship with the 120-day MA could influence future market movements.
During past episodes of intervention to prevent yen depreciation, speculators generally maintained positions of buying US dollars and selling yen in response to official intervention involving US dollar selling and yen buying. The basic dynamic was official yen buying versus speculative yen selling. The episodes in question include September–October 2022, April–May and July 2024, and April–May and July–August 2026. This trend is shown in the charts.
However, since September, speculators have temporarily shifted to selling US dollars and buying yen, making it appear that their position toward the authorities seeking to correct yen depreciation has changed from “enemy” to “ally.” This has raised the possibility that the balance of power during intervention episodes could change.
A factor common to intervention episodes is the relationship between USD/JPY and the 120-day moving average (120-day MA). In past episodes, levels of a stronger US dollar and weaker yen exceeded the 120-day MA, and hedge funds chose to sell yen, becoming adversaries of the intervention authorities. Since September, the US dollar has weakened and the yen has strengthened, and the view has been expressed that hedge funds have shifted to buying yen.
The view has been suggested that preventing a renewed move toward a stronger US dollar and weaker yen above the current 120-day MA would help keep hedge funds from again selling yen and becoming adversaries. Future market movements are likely to be influenced by the relationship between these levels and the actions of market participants.