The government used some ¥1.8 trillion for Wednesday’s currency market intervention to prevent the yen from rising further, according to the Bank of Japan’s transaction data.
According to the BOJ data on its current account deposit balances, the size of the intervention is estimated at somewhere between ¥1.7 trillion and ¥1.8 trillion — the biggest yen-selling, dollar-buying operation for a day.
The government is even considering increasing funds for foreign exchange market intervention in anticipation of a prolonged intervention to sell the yen for dollars, financial sources said Thursday.
The increase is expected to demonstrate the government’s determination to prevent the yen from rising further, after the government conducted its first yen-selling, dollar-buying intervention in6 1/2 years, they said.
After Wednesday’s move, the government appeared poised to intervene in the market further.
Prime Minister Naoto Kan reiterated Thursday that Japan will continue to sell yen when necessary, saying his administration will take “decisive steps” to stem the currency’s surge, which threatens the nation’s export-oriented economy.
The government usually issues foreign exchange fund bills to raise funds for currency market intervention. Under the fiscal 2010 budget that caps outstanding foreign exchange fund bills at ¥145 trillion, the government may be able to issue up to ¥35 trillion more in such bills in addition to about ¥110 trillion outstanding at the end of June for refinancing.
The sum for fiscal 2010 ending next March indicates the government will be able to conduct interventions close to an annual record of ¥32.9 trillion reached in fiscal 2003.
If the daily pace of nearly ¥2 trillion as seen Wednesday continues for some time, however, intervention funds may be depleted.
The government is considering raising the cap on outstanding foreign exchange fund bills under an extra budget for fiscal 2010 or a principal budget for fiscal 2011.
In another way to raise funds for currency market intervention, the government could effectively borrow funds from the Bank of Japan through sales of U.S. Treasury securities holdings to the central bank under repurchase agreements.
The government adopted the measure to secure currency market intervention funds before an extra budget was approved to raise the cap on outstanding foreign exchange fund bills in 2004.
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