Posted on 09/14/2010 11:07:13 PM PDT by bruinbirdman
Tokyo intervened in the currency markets for the first time in more than six years to weaken the yen, after the currency broke through Y83 against the US dollar and threatened exporter profits and business sentiment.
The intervention on Wednesday morning gave the Nikkei 225 a boost, sending the stock average 1.8 per cent higher by the close of morning trading at 9,470.31, reversing an earlier 1.1 per cent decline.
Traders had been waiting to test Naoto Kan’s resolve to stay out of the market after he won his Democratic party’s leadership challenge from party heavyweight Ichiro Ozawa on Tuesday.
Mr Ozawa had been seen by markets as more likely to intervene to curb the rise of the yen, which had been trading at a 15-year high against the dollar and prompting complaint from the business sector.
New of Mr Kan’s victory sent the yen as high as Y82.88 against the dollar by 10:25am on Wednesday in Tokyo. The yen then suddenly dropped 2 per cent to Y84.59 within an hour. The currency was trading at Y84.41 as of late morning.
Yoshihiko Noda, finance minister, confirmed the intervention to reporters. It was unclear whether the action was taken unilaterally but Mr Noda said that Japan had been in contact with authorities overseas.
Analysts and investors had questioned whether the government would order the Bank of Japan to sell yen and buy dollars given the difficulties Tokyo would face in convincing its international counterparts, particularly at a time when the G7 is encouraging China to be more flexible with its own exchange rate.
Previous interventions in the market showed that while intervention helped over the very short-term, such as days or weeks, unilateral intervention had not proven particularly successful over the long term.
Ministry of Finance data show the government directly intervened in currency trading to some degree at least once each year between 1991 and 2004.
Arguments that the yen is too high rest in large part on the nominal exchange rate, an indicator that ignores the fact that the US has experienced inflation over the past few decades, while Japan has spent much of that time mired in deflation.
The real effective exchange rate, adjusted for price changes and comparing the yen against a basket of currencies used by Japan’s largest trading partners, tells a very different story. By this measure, the yen is considerably cheaper now than it was for most of the 1990s.
A race to the bottom.....
I’m sure that we’ll hear wails of outrage from the “free trade” advocates who will point out how this is a deliberate violation of the WTO rules, and advocating that the US immediately make a formal complaint to the WTO.... right?
Yea, didn’t think so.
Well the Market Ticker is on the job, expletives and all:
http://www.market-ticker.org/akcs-www?post=166634
A BTW: this is consistent with what I’d been reading in the last two weeks. The BOJ and government said that the trip-wire on the yen was at 83.50. If it got stronger than that, they’d act. This number wasn’t pulled out of thin air - this is what their major exporters have told the government is the level beyond which they become unprofitable in a hurry.
Well, 82.mumble is stronger than 83.50, so here we go.
I like Karl.
I don’t always agree with him (I often do, but not always), but he has a background very much like mine, (ie, he’s a technical guy from the heyday of building the Internet) and he doesn’t pull punches or play at what he means.
Evidently, it didn't matter who won the PM slot. A little insight into who runs the show in Japan?
yitbos
Yep.
well if it makes our exports more competitive let the dollar drop to peso level. If we can’t finance our debt the government collapses and while that causes major problems they’d be smaller now than they would be five or ten years from now.
Quicker things hit rock bottom the quicker we can start looking to the future.
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