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March 18th 2009

Japanese Yen Hovers around 100 JPY/USD, Intervention Unlikely

In the wake of the Swiss National Bank intervening to hold down the value of the Franc, everyone is wondering whether the Bank of Japan (and perhaps other Central Banks) will follow suit. Asks one market commentator rhetorically: “How long do you think it will be until Japan tries once again to push the yen lower, with its export industries in tatters?” Given that the Japanese economy is forecast to contract for at least the next two quarters, and also that its trade balance recently slipped into deficit, this is an eminently reasonable question.


Even prior to the surprise SNB announcement, it was widely speculated that the Bank of Japan would intervene on behalf of the Yen. After all, the BOJ was the most recent Central Bank to have waded into forex markets; it unsuccessfully spent $350 Billion in 2003-2004 to hold down the Yen. Since the inception of the credit crisis, however, it has passed on several golden opportunities. “It declined to intervene in October when the Group of Seven industrial powers issued a rare inter-meeting statement singling out yen volatility, giving Japanese authorities the green light to stem its surge. Even when the yen hit a 13 1/2-year high of 87.10 per dollar in January and exports demand collapsed, the BOJ held back.”

Since the beginning of 2009, the Yen has fallen 8% against the Dollar, and has fallen to a 3-month low against the Euro. Now, the “pendulum is swinging the other way” as risk aversion eases up and investors turn their attention to macroeconomic fundamentals. “The yen’s safe-haven appeal has, however, lost some of its lustre due to a rapid deterioration in Japan’s economy…and political uncertainty with an unpopular government facing an election that must be held by October.”
Nonetheless, the Yen has not yet slipped below the psychologically important 100 Yen/Dollar barrier. Analysts speculate that this is due to capital repatriation by Japanese investors, for hedging and accounting purposes. In order to minimize forex conversion losses, Japanese retail investors are taking advantage of the relatively weak Yen by shifting funds into domestic value stocks. Japanese companies, meanwhile, are ” ‘dressing up’ their balance sheets ahead of their fiscal year-end, by liquidating foreign holdings and bringing home the profits from overseas subsidiaries, to raise their bottom lines.”

The likelihood of BOJ intervention is paradoxical. If investors fear intervention, they will sell the Yen, and in turn, minimize the need for intervention. On the other hand, if investors remain skeptical of intervention, they may buy the Yen, which could actually impel the BOJ to intervene. But putting game theory aside, most analysts remain convinced that economic and political circumstances point away from intervention as a real possibility.

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Posted by Adam Kritzer | in Japanese Yen, Politics & Policy | 4 Comments »

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4 Comments of “Japanese Yen Hovers around 100 JPY/USD, Intervention Unlikely”

  1. Sean Says:

    I found this post to be very interesting and enlightening. I like how you addressed the “human factor,” which most seem to leave out when talking about the market change. Formula’s are helpful but there is always that human factor that can change everything. Just wanted to let you know I appreciate the time you put into this and say thank you.

  2. GreenBull Says:

    i recall in 2004, when the BOJ did intervene too weaken the yen it was first followed by officials warning that such intervention is planned …

    This time, there was almost total silence from the side of Japanese policy makers, even when USDJPY was hanging around 90 for a month, inflicting losses to the economy on a daily basis.

  3. Ed Says:

    Hiccups in Forex is a global phenomenon. Even some of the stable Asian markets are sliding down.

  4. Paras Says:

    Look at it now in current scenario…vast difference.Lets hope in this year 2011 not everything but most of the trades go well in USD/JPY as well as crude.

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