What constitutes success for the world’s one-day yen policy? To minimise “excess volatility and disorderly movements in exchange rates,” if the G7 statement is anything to go by.
But then “volatility” is all a matter of time period. For instance, it has gone up over the one-day time horizon, with the very sharp weakening of the yen since central bank intervention began this morning. “Disorder” gives a little more wiggle room because it is defined by its effects. It might include, for instance, exchange rate movements that lead to a credit crunch. (One wonders, though, whether a rapid weakening of the yen would also have been classed as “disorderly”.)
Some pundits are saying the G7 action is at least partly self-interested. Certainly their participation is likely to cost them: their domestic currencies will appreciate, and the trades themselves are very likely to lose money as the yen eventually rebounds. Perhaps the tumbling Nikkei – and stocks elsewhere following – made these costs seem smaller. Success in these terms has been achieved – for today. American, European and British equities have gained today.
Other commentators suggest the moves are about defeating the speculators. If we could Read more
The Group of Seven industrialised nations have agreed to co-ordinated currency intervention for the first time in a decade to help Japan recover from its devastating earthquake, tsunami and nuclear crisis.
Authorities in Japan, the eurozone, the UK, Canada and the US agreed on Friday to help weaken the yen in a rolling intervention that began at 9am in Tokyo, which immediately pushed the yen down from above Y79 against the US dollar to below Y81. Read more
Yowkers. Interesting timing for Japan to go back into the FX markets and sell the yen for the first time in six years. On Wednesday the US Congress cranks up its China currency campaign again, this time the House as well as the Senate coming up with a bill allowing the US to block Chinese imports on grounds of currency misalignment.
As I wrote before, it’s not clear which way this development cuts. Does it make it easier to confront China because another G7 country has been forced to deal with the effects of Chinese currency intervention, or does it make it harder to argue that China should stop intervening when Beijing can point at Tokyo and say “them too”? Read more
An unscheduled statement from the Bank of Japan governor, though short, speaks volumes about worries over the strength of the yen. The currency broke a 15-year high of 85 to the dollar yesterday, which will add to recovery fears for the export-dependent economy.
Whenever the yen is strong, theories of currency intervention abound. It is thought likely the central bank would introduce further easing before the ministry of finance intervened to sell yen. The statement certainly tells us the BoJ is on the case: Read more
Lesson #1 for all politicians taking office: be careful what you say about currencies. (Actually, maybe lesson #1 should be: don’t say anything about currencies).
Japan’s prime minister, Yukio Hatoyama, caused a fuss today by saying that the yen is too strong, but put into context his remarks don’t add up to much.
From the FT:
“The recent strength of the yen does not necessarily reflect the strength of the Japanese economy and its industries,” Mr Hatoyama told a Diet committee.
An official at the ruling Democratic party said Mr Hatoyama told the committee that the exchange rate should be left to the markets, except in cases where there were sudden moves in the market that did not reflect the fundamental value of the currency.
Mr Hatoyama was responding to a question from the opposition Liberal Democratic party. The official stressed that the prime minister was not suggesting the need for an immediate policy response because the yen has not been particularly volatile recently.
All of which suggests that exchange rate intervention is not likely and nor would it be particularly justified, as the Bank of Japan’s real, trade-weighted exchange rate index indicates. Read more
Export-dependent Japan wants the carry trade back, apparently. A carry trade involves borrowing in a cheap currency to invest in one with a decent rate of return. The cheap currency of choice has been, for years, Japan. Recently there was much excitement that the mantle was passing to the USA. But Gillian Tett says Japan is fighting back.
The Japanese want the yen to be borrowed because it increases the quantity of yen and decreases its price. A lower yen means Japanese exports become more attractive internationally. Read more
Japanese finance minister Hirohisa Fujii deserves a little credit amid all the abuse he is taking for recent currency comments Read more
If US retail sales figures were driven by auto sales, what will happen when the various cash-for-clunkers programs stop? The dollar may be the world’s new carry currency and global stimulus measures may be worsening future cycles Read more