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Kuroda aimed for a surprise-driven decline in Yen - Nomura

FXStreet (Barcelona) - Richard Koo, Chief Economist at the Nomura Research Institute notes that the additional easing measures unveiled by the BOJ on 31 October were made by an official well versed in currency intervention, and also used to dealing with investors and speculators.

Key Quotes

“Mr. Kuroda previously handled forex interventions when he was at the Ministry of Finance, and his methods appear to have carried over to the BOJ. The 31 October announcement emphasized the element of surprise.”

“According to the Nikkei, an inner circle of staff was tasked with preparing for the announcement in strict secrecy because Kuroda feared that any leaks would greatly reduce its impact. This attempt to maximize the surprise is precisely how currency interventions are conducted and is an important part of timing them for maximum impact.“

“When the forex market is dominated by hot money flows, the policy effect of intervention can be enhanced by surprising the investors and speculators responsible for those flows. Speculators in particular are taking risk with their own money, and an unexpected event can force them to close out positions, thereby changing the market’s direction.”

“In contrast, when exchange rates are determined largely on the basis of real demand from importers and exporters, the impact of any intervention is necessarily limited since their behavior is unlikely to change in response to surprise actions by the authorities.”

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