Japan to rely more on timing than size in future FX action

Japan may lack the implicit approval of G7 nations to spend big in any future efforts to stem sharp yen rises and will have to rely on limited opportunistic strikes to prevent a build-up of aggressive bets on its currency.
That means that despite all the jawboning, Tokyo's record 4.6 trillion yen ($60 billion) intervention last week is unlikely to mark a start of a long campaign similar to the 35-trillion yen selling spree in 2003.
"Japanese policymakers say that Tokyo has gained some consent from the G7 on intervention. But judging from the statement, I doubt that's true," said Yasuhide Yajima, senior economist at NLI Research Institute in Tokyo.
"Having said that, I think Tokyo will probably intervene again. Not acting and allowing the yen to renew a record high is not an option for the government."
While Finance Minister Yoshihiko Noda has tried to keep markets on edge by making references to his discussions with G7 partners, it is doubtful there is much sympathy for Tokyo's battle with what is seen as a global currency realignment.
Back in 2003, Japan was the only major economy suffering from deflation and the aftermath of a severe economic slump, making it easier to gain Group of Seven understanding.
At the time, Washington recognised it was in the US interest for Japan's economy to recover enough to pull out of a banking crisis that, if mishandled, could rock global markets.
And in March this year, when the group acted together to weaken the yen after it hit record highs, it was a show of solidarity with a Japan that had just been hit by a massive earthquake, a deadly tsunami and nuclear meltdowns.
Analysts also point out that five months ago, the yen soared mainly on speculation about repatriation of funds to the disaster-stricken nation. This time, it is a broad dollar weakness fuelled by concerns about the US economy that is primarily driving the Japanese currency.
Given that large scale interventions may not sit well with international partners while inaction would draw ire from exporters at home, Tokyo may aim for a "shock" effect by carefully choosing the moment to step in.