TOKYO, Feb 6 (Reuters) - Currency intervention using Japan's foreign exchange reserves can deliver an immediate jolt to markets, but its ​impact would be more durable if accompanied by steady rate ‌hikes, a former top currency diplomat told Reuters. Takehiko Nakao, who served as vice finance minister ‌for international affairs between 2011 and 2013, made the remarks as the yen resumed its decline with Japan's election campaign entering its final stretch ahead of Sunday's vote. "Intervention using actua ...

Core Viewpoint - Traders are on high alert for potential Japanese government intervention to stabilize the yen, with possible support from the US, as Prime Minister Sanae Takaichi indicated readiness to act against abnormal currency movements [1][4]. Group 1: Speculation of Intervention - Speculation regarding intervention has intensified after reports that the Federal Reserve Bank of New York contacted financial institutions about the yen's exchange rate [2]. - Michael Brown from Pepperstone Group noted that rate checks are often a precursor to intervention, suggesting the current administration has a lower tolerance for speculative foreign exchange moves compared to previous ones [3]. Group 2: Market Reactions - The yen experienced significant volatility, reversing a downward trend and gaining as much as 1.75% to 155.63 against the dollar, marking its largest one-day rally since August [3]. - Traders are advised to be cautious as the yen may trade near 155 against the dollar at the start of the week, following Takaichi's comments [5]. Group 3: Government Stance - Takaichi emphasized the government's commitment to address speculative and abnormal market movements, although she refrained from commenting on specific market conditions [4]. - Recent warnings from government officials have also included concerns about rising bond yields, which had reached record levels before retreating [5].

Currency Swap Plans for Argentina - Discussions involve a $20 billion swap line established by the Treasury with the Argentina central bank [1][2] - Reports indicate potential FX intervention, including outright purchases of pesos and sales of dollars [1] - Treasury is reportedly working with the private sector on another $20 billion to provide longer-term funding [2] Mechanics of Swap Lines - Swap lines involve the Federal Reserve exchanging dollars for the currency of another central bank at a specified exchange rate [3] - Swap lines can range from one day to three months in maturity [4] - At maturity, the Fed receives dollars back and returns the foreign currency at the same exchange rate [4]