Japan spent over $70 billion trying to prop up the yen. The yen looked at that money, said no thanks, and went back to sleep at 160. The Bank of Japan even threw in a rate hike for good measure. The yen yawned.
This is the second time Japan decided 160 was the line in the sand. The first time they intervened, the yen briefly pretended to care. This time it didn't even fake enthusiasm. Seventy billion dollars buys you a lot of things. A brief pause in currency depreciation is apparently not one of them.
The technical setup here is perfect. You've got a central bank that telegraphs its pain threshold like a poker player who sweats when he bluffs. You've got a level that failed before. You've got retail traders who think intervention means reversal because they read it in a headline once. They're long right now. They're very long. They're checking their accounts every four minutes wondering why the bounce isn't bouncing.
The Bank of Japan could've saved seventy billion dollars by simply doing nothing. The result would've been identical. The yen would still be at 160. The charts would look the same. The only difference is some currency trader in Tokyo would still have a job.
Here's what matters. Support at 160 held before because Japan wrote a check. Support at 160 is holding now because Japan wrote another check. That's not support. That's a subscription service. And subscriptions get canceled when the credit card declines.
The rate hike was supposed to add credibility. Instead it added confusion. Raising rates while simultaneously intervening is like putting out a fire while pouring gasoline on it. Pick a lane, Japan. Either defend your currency with policy or defend it with cash. Doing both just makes you look desperate twice.
Retail traders are currently Googling "how many times can a central bank intervene" and not liking the answers they're finding.
Photo by Cullen Cedric on Unsplash
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