Monday's yen volatility may not be due to continued official yen buying. The logic is that when Japan buys yen and sells foreign exchange, it withdraws yen liquidity from the money market, typically creating a funding gap significantly larger than brokerages initially predicted. Previously, when Japan was suspected of intervention, the Bank of Japan's estimated funding gap was significantly higher than market forecasts, which Reuters interpreted as a possible large-scale use of funds to buy yen.
However, this time the expected funding gap is 3.38 trillion yen, while the previous forecast range was 2.32 trillion to 2.6 trillion yen, a difference of only about 0.8 trillion to 1.06 trillion yen. This is not an exorbitant amount and seems more like normal liquidity fluctuations or other fiscal factors than a clear foreign exchange intervention. In similar situations, Reuters has previously used Bank of Japan money market data to determine that if the funding gap does not significantly exceed expectations, the exchange rate fluctuation is more likely to stem from market positioning adjustments rather than official intervention.
If it wasn't intervention, Monday's movement suggests that the yen's movement has shifted from a question of "whether there was real intervention" to "the market's fear of further intervention." Even without actual market intervention that day, as long as the previous coordinated action between the US and Japan has been confirmed, USD/JPY bulls will reduce leverage, and yen shorts will be more likely to cover their positions. The key going forward is not the single-day funding gap, but whether the US and Japan will escalate their verbal warnings into concrete action if USD/JPY approaches 160 again.
