Posted on 07/01/2002 10:59:55 PM PDT by BlackJack
Currency intervention costs 3.3 trillion yen
Japanese monetary authorities have spent more than 3 trillion yen intervening in the currency market since late May, according to statistics compiled by the Finance Ministry.
During the yen-weakening campaign, the exchange rate has gone from 125 yen.61-64 to the dollar on May 21, the day before the intervention began, to 119 yen.55-57 at 5 p.m. Monday.
The most recent dollar-buying spree, carried out by the Bank of Japan on behalf of the ministry, came Friday.
Two reports on the receipts and payments of Treasury funds, one released last month and the other on Monday, indicate the Foreign Exchange Fund Special Account incurred a total deficit of 3.29 trillion yen. The account is mainly used to intervene in the currency market.
The BOJ intervened three times in May and four times in June in a bid to keep the yen from appreciating too rapidly against the falling dollar and thereby keep exporters' profits high.
The reports are believed to have covered all but Friday's intervention.
The amount used in the period is roughly equal to the 3.2 trillion yen utilized by the BOJ to fight a strengthening yen immediately after the Sept. 11 terrorist attacks in the United States.
If the Dollar drops much lower everybody will want to buy US stuff. Too Bad we don't make much stuff anymore.
A cheap Dollar could put quite a bit of pressure on WTO and GATT to control dumping and the imposition of tariffs by the EU and Japan.
It's about $25 billion at ~120 ¥/$. Not massive, but not small either, in a little over a month.
We are becoming a nation of shopkeepers.
As regards 'cooking the books', you're FAR too late; the keiretsu, with the full cooperation of the Japanese gov't, began doing that in roughly 1988.
The red ink in Japan IS beyond belief, probably on the order of Y300 trillion, very possibly more, but they are operating under the permanent assumptions that A) Everyone will still buy their goods, i.e. they can export their way to prosperity, B) It's more important for the gov't to keep face AND stay in power than it is to square the books, and C) The Japanese citizen is so much of a sheep that he/she will sit quietly and very still.
C) has been true for a decade or more, even though the Japanese salaryman's living standard has dropped like a rock. Time is running out on this one, even notwithstanding the unbelievable patience/stoicism of the Japanese working class. B)is true universally, here too, of course. A) is problematic. MITI no longer has the universal influence it once did (probably a good thing), but the Japs are in the same situation as would be if Americans HAD to learn cricket -- resistance until the last, and a very poor ultimate understanding.
USD can still go lower, likely will, but if so, and it goes much lower, say to 107, the Japs will be in the effective position of having to root for the Wonderland, er, pardon me, Euroland consumer to bail their sorry b*tts out.
How to make a profit off this mess? Pretty easy, just write JPY puts against USD, 200 or so pips OOM. Should be good for the next 60 days.
Towards the end of this month, suggest buying BOTH JPY and EUR ATM straddles against USD, term of 90 or 120 days.
Look, currencies are just a huge game of 'pass the trash' these days; don't fall in love with ANY of them, and especially not your own.
Best wishes, and good trading to all!
There are 3 currencies, USD, JPY, EUR. At any given time, one is strong, one is weak, one is somewhere in the middle. USD has been strong for years, but it couldn't become more bid, and the multi-yard traders (that's multiple billions of USD at a whack) want new hunting. They'll get it for a while.
So, write puts on JPY and EUR for 60-90 days, 30-day term each time, and be a happy man.
Don't sweat Moody's bond ratings. Moody's are ACCURATE enough, but they deal in facts. The Japs gov't doesn't, hasn't for years (not that ours has either, of course).
That's the big battle isn't it? The Bush administration wants to use the same bad demand management policies that Japan's been using the past few years. But the dollar and yen can't be weak against each other at the same time.
Inflation story is similar. Wonderland shot themselves in the inflationary foot by the way they handled the introduction of E notes and coins, adding 1-4% to CPI (depends on whose figures you like), but this is of course a one-off deal. Wonderland is half-recession half-prosperity, not really a candidate situation for inflation. Besides, don't they have EU 'laws' (snort) against that, now? (g!)
Food inflation in N.America is very unlikely, bar a weather disaster in the next 5 weeks. Meats rate to get cheaper even, through year-end, assuming only decent/good grain crops. Russia is probably going to ban US poultry (again), which will in turn pressure beef and pork prices, and there are too many hoggies out there anyway...we might see a mini-replay of 1998, where cash reached 9 cents/lb (NOT a typo) for the first time since the Depression. I don't think prices will get THAT low, but 20 cents strikes me as likely.
Industrial inflation is hard to see, too. Car sales have fallen off a cliff after late 2001/early 2002 extreme promotions transferred demand to an earlier point in the cycle. Lumber and copper are well to the low side of their recent years' ranges.
A weakening dollar will result in the importation of *some* inflation, but I believe this will be outweighed by the factors above, and numerous others.
Interest rates? The long end of the curve probably rises modestly through year-end. The short end of the curve does NOTHING until after the election. This, by the way, means that the purchase of June '03 Eurodollars against the sale of December '02 Eurodollars is a virtual lock to make 30 ticks or so.
Hope this is of some use to you, and best regards.
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