By Chisa Fujioka
TOKYO, Oct 10 - A recent spate of intervention by Japanese monetary authorities has boosted trading volumes in Tokyo's foreign exchange market, but it remains to be seen if a lasting recovery is in the offing, analysts said.
In a triennial survey, the Bank of International Settlements (BIS) said on Wednesday that average daily turnover in Tokyo's foreign exchange market in April rose 8.1 percent to $147 billion from levels three years ago.
The rise in turnover, comprising spot, forward and swap transactions, came despite an average 18.8 percent contraction in world foreign exchange turnover.
More recently, in late September, volume was swollen by intervention by the Bank of Japan trying to hold down the yen.
The Bank of Japan (BOJ) was estimated to have spent $19.40 billion over five days to stop the yen's rise, a move that invited increased activity by speculators.
But analysts were divided on whether the increase in volumes in the Tokyo market would continue.
"Compared with the 1980s, Japan is seeing an overall sluggishness in financial activity," said Taisuke Tanaka, chief forex strategist at Credit Suisse First Boston, referring to Japan's decade-long economic slump.
"Japan will need to attract investors to the yen to see a sustained rise in volumes and we won't see that without a recovery in the economy. Not many are willing now to invest where interest rates are zero," he said.
But some saw Japan luring activity within the region as cost-benefits started to work in its favour.
The BIS survey results for April, which saw Tokyo reclaim the title of the world's third largest forex centre after London and New York, were largely explained by a sharp increase in interbank transactions in currency swaps by foreign banks based in Tokyo.
The BOJ said foreign banks, who had shifted some Asian forex operations to Singapore, were returning due to lower land and real estate costs.
The BIS survey showed turnover in Singapore shrank by 27.3 percent in April from the previous survey.
"I don't get the impression Tokyo is seeing a big increase in forex volumes, but its relative position among Asian centres is rising," said Masayuki Yamamoto, research analyst at Bank of America.
"For foreign banks, it's a matter of cost and it's unlikely that Japan will see a sharp increase in real estate prices any time soon," he said.
But Tanaka said trading in other Asian cities still had advantages, with Singapore ideal for trading regional currencies.
Hong Kong also held great potential given growing business interests in China, although it was still unclear if or when Beijing would float the yuan.