Intervention Talk Fuels Yen Buying by Retail FX Investors

2026-07-05

Yen buying rises on intervention speculation

For the government and the Bank of Japan, which are looking for an opportunity to intervene in the foreign exchange market to stop the yen's decline, the moves of retail investors have become a concern. They are retail investors who trade foreign exchange margin products, commonly known as 'Mrs. Watanabe.' Their tendency to build yen-buying positions in advance, anticipating yen-buying intervention, has strengthened and could affect the impact of any intervention.

Yen buying by FX investors helps curb yen weakness, but if the yen rises on intervention, profit-taking yen selling tends to increase and can easily blunt the upward effect. Conversely, if intervention comes too late and yen weakness deepens, loss-taking yen selling could spread and accelerate the yen's decline. It is one of the factors that the government and the Bank of Japan are watching closely.

Highest ratio since 2013

The most notable recent surge in such unusual yen buying came in late June, when the yen fell to the upper 161-yen range against the dollar and approached its weakest level in 39 and a half years.

When the author compiled weekly data from GMO Click Securities, Gaikaex.com and Central Tanshi FX, the share of yen-buying, dollar-selling positions in Mrs. Watanabe's overall dollar-yen positions reached 70.3% as of June 24. The so-called intervention trade, in which investors build yen-buying positions in anticipation of a yen rise from intervention, had spread.

It is not uncommon for the share of yen selling to exceed 70%, but it is rare for the yen-buying share to top 70%, and 70.3% was the highest since 2013.

Yen buying continues despite higher costs

One reason the yen-buying share has been slower to rise than yen selling is the difference in returns caused by interest rate gaps. In yen-selling, dollar-buying trades, investors can more easily earn the difference between higher dollar rates and lower yen rates, whereas yen-buying, dollar-selling trades incur payments instead.

These are known as swap points. At Gaikaex.com, if a position is carried from July 2 to July 3, one day of yen-selling, dollar-buying positions earns 170 yen per $10,000, while yen-buying, dollar-selling positions require a payment of 200 yen.

Even so, FX investors in late June built 'an unusually large yen-buying position' (Takuya Kanda of the Gaikaex.com Institute), apparently because the yen's drop to a 39-and-a-half-year low was becoming increasingly likely and the chance of intervention looked extremely high.

Risk of selling pressure after gains

However, by July 1, a week later, the yen-buying share had fallen to 62.8%. Comments from Federal Reserve Chair Jerome Powell and other factors led expectations for US rate hikes to ease somewhat, and dollar selling caused the intervention trade to lose momentum.

Still, the yen remains at a fairly weak level. If yen weakness deepens further, yen buying by FX investors, whose expectations of intervention have risen, could expand. For the authorities, two points require attention.

As noted above, after yen-buying intervention, profit-taking yen selling tends to emerge in large volumes, making it easier for the effect of intervention to fade. On the other hand, if a decision to intervene comes too late and yen weakness advances further, loss-taking yen selling could push the yen lower even more.

Mrs. Watanabe's presence is significant. According to a Bank of Japan report, as of April 2022, 'retail investor-related transactions' accounted for about 20% of all spot transactions in the domestic market.

Authorities seeking the right timing for intervention are said to focus on overseas speculative flows, but the moves of retail investors are also becoming impossible to ignore.

Enjoyed this article? Share it with your network!