At the moment there is a strong threat that the Bank of Japan may intervene in the JPY to strengthen it. The Bank of Japan is not wanting to see further depreciation of the Yen since a weak Yen puts pressure on Japan’s domestic market. As Japan imports the majority of its energy needs a weak JPY increases those energy costs. Although it is true that the JPY’s weakness is advantageous for Japan’s export market (a weak currency makes exports more competitive overseas) politically there needs to be a balance between domestic and International market needs.
So, the BoJ acted at the end of September, intervening in FX markets and sending the USDJPY lower. After the event, Japan’s Ministry of Finance’s (MoF) top currency official Kanda said that ‘we are always ready to take necessary steps against FX volatility and says he can make a decision on FX intervention anywhere even from an airplane’. So, the message from Japan is this ‘ we are ready to act at any time’.
So, how can traders take advantage of these currency moves as often they have already happened by the time they are reported. One strategy is to use a sell-on-stop order outside the average daily range for the USDJPY pair. At the time of writing the Average Daily Range for the USDJPY is 120 points, so a sell-on stop below that number (with a stop of say 1/2 that) would only likely be triggered if the BoJ intervene. Traders would also need to make sure they had a take profit of, say, 120 points, which would automatically take them out of the trade for a profit. Another strategy would be to have a sell-on stop order below a major trendline.
The risk to the above ideas is that the market may move for a different reason, other than BoJ intervention, and potentially trigger the sell-on stop order. So, the position will need monitoring for this, and other, reasons. Now, these parameters are not prescriptive, but examples of what could be done. The sell-on-stop order is a very helpful order for situations like this when you are expecting the USDJPY to move lower rapidly, without notice, but you want to try and get into that move.