(As written for My Paper on 1 November 2011. Click here to enlarge)

75.57 was the magic number for the Bank of Japan to step in.

After weaks of jaw-boning the markets, the authorities finally intervened to weaken the currency for the third time this year.

Finance Minister Jun Azumi told reporters yesterday, “I have said many times, if forex moves do not reflect the economic fundamentals and speculative moves last, Japan will take firm measures.”

Once the Bank of Japan sent the rocket blasting at 9.25am yesterday, USD/JPY spiked up more than 300 pips in a matter of 30 minutes.

Azumi acted after the Bank of Japan last week expanded stimulus programs to a total of 55 trillion yen (USD694 billion) from 50 trillion yen as Europe’s sovereign-debt crisis spurred the yen to a 7.5% gain versus the dollar in the last six months.

The intervention weakened the Yen against more than 150 currencies worldwide. It sank more than 4% against the US dollar, touching 79.53 at 3pm yesterday. It slid 3.3% against the Euro and 2.7% against the Aussie dollar.

During the intervention in August, Japan sold 4.51 trillion Yen, their largest monthly amount since March 2004. Although the USD/JPY blasted through the 80 level and reached a high of 80.23, the entire move was negated within 3 days.

There are two reasons why this round of intervention could last longer than the one in August:

1. Improving date from USA

According to the Bureau of Economic Analysis, real GDP – defined as the output of goods and services produced by labour and property – increased at an annual rate of 2.5% in the third quarter of 2011.

This is almost double the 1.3% reported in the second quarter.

This data could give the US dollar a boost, and help USD/JPY maintain its upward move.

2. Precedence from Swiss National Bank

On 6 Sep 2011, The Swiss National Bank intervened in the Forex market by selling the Franc, causing it to drop 8% against the Euro in a day.

It also mentioned that it would not “tolerate a EUR/CHF exchange rate below 1.20.” The SNB went further to say that they would enforce this minimum rate with the utmost determination and will defend it by buying foreign currency in unlimited quantities.

Having seen the effectiveness by the SNB in enforcing a floor – EUR/CHF has not dropped below 1.20 till today – the Japanese authorities may decide to follow suit and announce a specific level of defence for USD/JPY.

After the intervention yesterday, the share price of many Japanese exporters jumped. Canon, which gets more than 80% of its revenue outside Japan, rose 1% and Nintendo rallied 2.3%.

Top News this Week

1. USA Non-Farm Payroll. Friday, 4 Nov 2011, 8.30pm. I expect figures to come in below 95,000 (previous figure was 103,000).

Trade Call

Long AUD/USD at 1.0600

On the hourly chart for AUD/USD, an area of conversion is spotted at 1.0502. The distance from here to the high point reached on 27^th Oct is 250 pips. Our bias is for a long because of the rally in the risk currencies the previous week.

Our entry is taken at 1.0600, and a protective stop is placed 60 pips below the entry price. We will have 2 targets on this trade, and exit the final position at 1.0720.

Entry Price = 1.0600
Stop Loss = 1.0540
1st Profit = 1.0660
2nd Profit = 1.0720