Wednesday, September 15, 2010

Japan Intervenes in Currency Market for 1st Time in 6 Years

It appears with the Federal Reserve set to embark on a path of diluting the U.S. dollar even further post election or early 2011, currency traders have switched from the dollar to the yen, amongst the "big 3" currencies as their safe haven the past 5-6 months.  (The swiss franc and gold have been the other "currencies" where investors are fleeing as the U.S. policy treats its currency as toilet paper).   The yen's appreciation has wrecked havoc for Japanese exporters - and been a boon for German exporters - as stronger currency makes products less competitive in price.  With the Japan much more dependent on exports (as is Germany) than a country like the U.S. this is especially debilitating to the economy. On the flip side it's a positive for consumers in Japan as imports become cheaper.

There have been rumors of an intervention but until last night it was mostly in the form of the bully pulpit.   But now the Bank of Japan has taken action - we'll see how long this unilateral action lasts; usually these things have little long term effect but in the near term you can bet some algorithmic programs were caught with their pants down.

Via AP:

  • Japan waded into the currency market Wednesday for the first time in six years, buying dollars to weaken the surging yen, which is battering famed Japanese manufacturers like Toyota and Sony after spiking to 15-year highs.
  • Prime Minister Naoto Kan surviving a leadership challenge the day before had driven the yen to its latest high as currency traders bet that intervention was unlikely on his watch.
  • The surprise move, a coordinated effort by the finance ministry and central bank, shows a newly empowered Kan stamping his authority on government policy and means the yen is now less of a one-way bet -- even if the effects of intervention prove to be short-lived. Japanese officials would not provide a figure for how much yen the central bank sold in the market.
  • The currency has risen about 10 percent against the dollar this year, and business leaders were pressing the government for help. The yen's rise had gained momentum as worries about banks' exposure to the debt of European countries with stagnating economies triggered a search for safety. The yen and Swiss franc have been the prime havens for investors hoping to safely park their money this summer.
  • A strong yen hurts Japan's exporters -- the mainstay drivers of the country's still-fragile economic recovery. It erodes their foreign income when repatriated and makes their products less competitive in overseas markets. Toyota Motor Corp. estimates that every 1-yen climb versus the dollar saps 30 billion yen ($351 million) from earnings.
  • But there was widespread skepticism that Tokyo can keep the yen on a tight leash without coordinated action by major central banks around the world.   The effect from Japan's solo intervention won't last very long. We have to see how the U.S. and European monetary authorities would react," said Yuji Kameoka, chief forex strategist at Daiwa Institute.
It is very difficult to make a dent in currency markets for more than a few days or weeks at most, especially if one country works in isolation... so we'll see if this is anything more than a blip on the radar when we look back in a month.  As for help from Europe or the U.S.?  Are you kidding?  Germany runs the EU and is as export dependent as Japan... and in the U.S. the political mantra is... "if it's good for multinationals who fund our campaigns - while shipping off jobs... it's good for everyone!"   The multi national mega size corporate oligarchy wants a weak currency so they shall get it... with Bernanke as enabler in chief.   Japan - you are on your own.

  • The dollar's woes stem in part from market speculation that the Federal Reserve may restart buying Treasurys and other assets this year to try to bolster the U.S. economy. That would likely drive U.S. interest rates even lower, which would make some investments bought in dollars less appealing for investors.  "This could be a very tough time for Japanese authorities if the Fed really implements a massive quantitative easing," Fujii said.

No position

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