Intervention in the yen: the quiet warning signs before the loud move

[Shadow Trader]

When Japan's authorities want to slow a rapid yen move, they sometimes buy yen in the market, selling dollars. The result is a sudden jump in the exchange rate, often several yen in a few minutes, sometimes followed by a partial retrace.

Intervention is rarely announced in advance, but warnings come. Officials make statements with increasingly pointed language. The pace of the yen's decline accelerates. The pair approaches levels that previously prompted action.

For a scalper, an intervention is a feast or a disaster, depending on position. A long USDJPY position during a surprise intervention can lose hundreds of pips in minutes, with the stop filling at a terrible level. A short position can gain a windfall.

Brokers respond with wider spreads and sometimes reduced leverage on yen pairs.

The practical response to a rising likelihood of intervention is simple: smaller size, no overnight positions, no pending orders sitting in the market, and attention to the wording of official statements.

Which signs have been used to judge that intervention risk had risen, and did they work?