Both Japan and Switzerland are grappling with firm currencies, but in very different ways, and reserves data out overnight from both illustrate this.
For Japan we have learnt, somewhat after the event, that the MoF intervened in the early part of November to quell the strength of the yen. This came after the large-scale intervention on the last day of October (JPY 8.1trln), with the MoF implemented a JPY 1.1trln of yen sales in the first 3 days of November. Some have called this stealth intervention, but in reality it was just a follow-through which in reality made little further material difference to the value of the yen which traded pretty much in tandem with the Swiss franc during the first few days of November.
That’s all clear then, which sits in contrast to what is going on in Switzerland where events are more opaque. The SNB introduced a cap to CHF strength early on in September, but has not been as explicit as Japan in detailing exactly what interventions have taken place. Furthermore, the SNB is more inclined to conduct forward and swap operations, as well as spot transactions, in order to quell currency strength. The latest data show reserves falling some 10% in Swiss franc terms. Taking the level of reserves prevailing at the end of August (the cap was announced on 6th September), reserves are down around 10.3% in Swiss franc terms. Around three-quarters of this decline is down to the weaker value of the Swiss franc, rather than direct intervention. If we take the period after the floor was set however, i.e. October to January, then we see reserves down around 7% in Swiss franc terms, which is more than was suggested by the underlying composition of reserves valuations. In other words, from what we can make out (this caveat a requirement in relation to the SNB), the authorities have not been undertaking ‘stealth’ intervention to keep the CHF from rising.
That said markets are becoming increasingly nervous at the prospect of fresh SNB intervention, not least because EUR/CHF has been perilously close to the 1.20 floor and there is a new (interim) president at the helm of the SNB, whom at some point could well flex his muscles to prove he means business. His comments this morning essentially re-iterated the SNB’s commitment to buy unlimited quantities of foreign exchange to defend this level, although the Swissie initially strengthened on the news, some fearing something more significant from his speech. Stealth won’t be enough to keep the Swissie contained.