Yen Intervention

On Wednesday (21/1/09) the dollar fall heavily  against the yen due to expiration of  dollar/yen option position at 90 and without being exercised at 10.00 am New York..

The position had been defended by buying dollars against the yen but with the expiration, the holder no longer had to buy dollars but rather wanted to sell them, pushing dollar/yen to a session low. The Holder an an institution in question pulled the bid at 10.01, a 3% plunge down the elevator shaft swiftly ensued, taking USD/JPY down to its previous low of 87.10. 

It was rumored that the 90 yen option position was traded for $5 billion.

Dollar selling against the yen spilled over into EURJPY with the single currency falling to its lowest level since March 2002.

It was rumored that the 90 yen option position was traded for $5

Intervention rumors swiftly ensued, though USD/JPY subsequently squeezed higher along with US equities. But still, it would be quite a statement for Japan to intervene in currency markets in week one of the Obama administration.

Looking at a USD/JPY daily chart above, the retracement  from the November highs to the December lows, we see the Yen ripped down to just below the lows made in December above the 87 handle. The pair rebounded to the 23.6% retracement level and has since traded lower.

A possibility of double bottom is forming, but a hard break below the 87.00 level will caused a further slide down.

But will the USDJPY slide any further? 

Not likely, according to  Bank of New York Mellon currency strategist Neil Mellor.

He said that because of the market's fear of currency intervention, the yen's gains may soon come to an end. Mellor also said the possibility of the BOJ intervening is very real and that the chances of intervention will rise significantly should the cross fall below its monthly low. On Jan. 19, former ministry official Eisuke Sakakibara told CNBC that Japan would intervene if the currency falls below the 85.00 level.