Standard Chartered ponders USD/JPY impact of 'intervention on the cheap'

Standard Chartered analysts have weighed in on the U.S. Treasury's involvement in a Japanese yen intervention that took place on July 31, estimating the Treasury spent between $5 billion and $10 billion as part of the move.

According to a note attributed to Treasury Secretary Bessent, which analysts say may have been intentionally leaked ahead of a cabinet meeting, the intervention was signaled earlier in the day before being executed late on a Friday when market liquidity was typically low.

Japan is estimated to have purchased around $36 billion worth of yen alongside the U.S. Treasury action, according to Bloomberg News. On August 3, Japanese and U.S. officials issued statements indicating a willingness to intervene further if needed.

Standard Chartered analysts noted that the euro strengthened on early reports of the intervention and remained broadly flat during its execution, rather than weakening as would typically be expected if it were the currency being sold to fund the yen purchases.

The analysts said the combination of statements and intervention signals had "obscured the limited nature of the Treasury intervention," adding that in the short term, market participants were likely to be more cautious about re-establishing short positions on the yen.

The note also flagged that if the Treasury's limited participation becomes apparent to markets, traders may regain willingness to short the yen again. The analysts added that FX intervention may have less impact on price-insensitive buyers of U.S. dollars in Japan, such as corporate entities and retail investors buying foreign equities.

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