The Bank of Japan, known as the "widow maker," may have spent more than $30 billion (about 220 billion yuan) on Friday in its second intervention in a month to support the yen, traders estimated. The yen hit as high as Y151.94 against the dollar. By the end of the day, the yen rose against the dollar in the short term, and finally traded at 147.64, with a maximum fluctuation of nearly 4% on the day. Analysts believe that this level of currency volatility is enough to "explode" funds shorting the yen.

South Korea, meanwhile, is on the move. South Korea has pledged at least 50 trillion won ($34.7 billion) in bailout funds to support a bond market strained by rising interest rates and reduce the risk of corporate defaults. South Korea has already reactivated a 1.6 trillion won bond stabilization fund.

As a result, the dollar index also fell sharply on Friday. So is the plunge an opportunity?

The Bank of Japan reportedly intervened in the yen after it fell below a 32-year low of 151.9, though government officials declined to say how much.

The Bank of Japan, known as the "widow maker", may have spent more than $30bn on Friday in its second intervention in a month to prop up the yen, according to traders' estimates, according to media reports. Finance ministry officials did not confirm that they intervened on Friday, but two people close to the government confirmed that action had been taken.

On Friday, the yen traded as high as Y151.94 against the dollar. By the end of the day, the yen rose against the dollar in the short term, and finally traded at 147.64, with a maximum fluctuation of nearly 4% on the day.

Some professionals believe that a 4% fluctuation is enough to penetrate the bottom line of countless traders. The Bank of Japan did a very good job this time, the timing of the sale, is also steady, only one war, at least create a hundred billion dollars of profits and losses, bears may be "exploded."

Bank of America estimates that the boj, which has $1.3tn in foreign exchange reserves, could intervene up to 10 more times by selling dollar assets. Masato Kanda, Japan's top monetary official, recently suggested that the government had "unlimited" funds to intervene in foreign exchange, according to Japanese media reports.

South Korea to strike?

In addition to Japan, South Korea seems to be taking action. South Korea has pledged to provide at least 50 trillion won ($34.7 billion) in rescue funds to support a bond market strained by rising interest rates and reduce the risk of corporate defaults.

South Korea will expand and implement a "liquidity supply program" to prevent the credit crunch from hitting corporate bonds and other short-term money markets, Finance Minister Choo Kyung-ho said in a statement on Sunday after an emergency meeting with Bank of Korea Governor Rhee Changyong and authorities, according to media reports.

In response to growing concerns in the corporate bond and short-term money markets and to prevent a liquidity crunch, the government decided to expand its existing market stabilization fund to 50 trillion won or more, Choo told a news conference after the emergency meeting.

Mr. Choo said South Korea will resume buying commercial paper and corporate bonds starting Monday. First, 1.6 trillion won from the bond stabilization fund will be injected into the market. Asset-backed commercial paper linked to real estate projects would be one target, he said. The government has decided to double the limit on purchases of corporate bonds and commercial paper from the current Won8tn to Won16tn ($11.2bn). 'Both the government and the central bank agree that the current market situation is very serious, and we will mobilize all available policy measures to deal with market anxiety if needed,' Mr. Choo said.

It is one of the biggest rounds of financial support South Korea has provided to the market since it expanded emergency funds to about Won100tn to protect companies in the event of an outbreak. South Korea has already reactivated a 1.6 trillion won bond stabilization fund.

Changyong Rhee, governor of the Bank of Korea, told reporters that the new support package was a 'micro-measure' aimed at boosting confidence in the commercial paper market and didn't mean monetary policy conditions had changed, according to a transcript provided by the central bank. Yields on South Korean commercial paper have soared to levels last seen during the global financial crisis, while sales of new won bonds have plunged 90 percent this month, according to agency data going back to 1999. South Korean authorities are stepping up action, including banning short selling of stocks and intervening in the foreign exchange market.

Is there a chance in the stock market?

The dollar index also tumbled on Friday on the back of Japan's currency intervention and reduced expectations of a dollar rate rise.

The dollar index is an important anchor for global equity assets. Major U.S. stock indexes rebounded sharply as the dollar index fell.

So does this mean a correction in global equity assets (reversing expectations of a dollar rate rise)? Analysts say it may be too early to make that judgment.

First, US Treasury yields, the anchor of global assets, have not fallen significantly, with the 10-year yield still above 4.2 per cent. Friday's sharp drop in the dollar also didn't drive Treasury yields significantly lower. Clearly, investors in Treasury bonds don't expect inflation to end that soon.

Second, currency bears will not surrender so easily. Under the current global pattern, the US dollar index is still easy to rise and difficult to fall. This is mainly because the two variables, inflation and the Russia-Ukraine conflict, have not changed fundamentally. Demand for offshore dollars shows no sign of abating

Third, in the process, the Fed is not only raising interest rates, but shrinking its balance sheet with even greater scale and power. In terms of time schedule, the Federal Reserve plans to use 2-2.5 years to complete the reduction of the balance sheet, that is, the longest to the end of 2024 to end QT, during which the size of assets can be reduced by about $2.3 trillion to $2.8 trillion, and the balance sheet balance will be about $6.2 trillion to $6.7 trillion.

Of course, according to the Bank of America, the current credit stress indicators in the United States are close to the tipping point. If the Fed does not strike a balance between controlling inflation and unexpected risks, the US risks a financial market crisis like the current one in the UK. This means that the Fed needs to reduce the pace of interest rate hikes at the right time, which is a bearish variable for the dollar.

Source: Securities Times