Forex Japanese Yen
Japanese Yen: Intervention Fears Since Strengthening-for now!
On the heels of the Bank of Japan's emergency meeting early a week in which policy makers decided to extend the quantitative easing its credit markets, Japanese officials led by Prime Minister Hatoyama are suggesting varying degrees of intervention to keep the yen strengthened. Or are they?
Taking their signals directly from the book of monetary Bernanke double standard, Japanese ministers are offering conflicting views about what course of action to be taken to curb the yen, even trying to get international aid. What we all agree on is that a strong yen is bad for their exports and therefore bad for its economy.
Regardless of the rhetoric and what may or may not happen, yen bulls are heading for the exits. This also coincides with the resumption of commercial risk taking, as the market for the time-being dodged any spread of the news last week out of Dubai.
- All in the name of "reducing the volatility".
Let's take a quick look at a chart of USD / JPY:
- In case of default 89, then the next stop could be the 90.75 level.
If the yen moves back to level 85, then expect more forceful words of the ministers, and not necessarily rule out the intervention. What seemed like a good idea in September could have important implications for the Japanese economy, especially if things do not improve.
Besides keeping an eye on this pair is what is happening here in the U.S.. The foreign exchange market almost blew-off Plosser comments that we may need to raise rates from here sooner rather than later to avoid inflation, regardless of their state of recovery. While there is still much debate about where we are on the inflation / deflation kingdom, one thing is certain: the maintenance of a policy of zero interest a long time time will not be good for the U.S. economy.
If rates in the U.S., or even speaks the same, increasing, then look for the yen to resume his "natural position" as the currency of choice for the carry trade.
Meanwhile, Japanese officials will do everything possible to threaten the intervention to buy time and slow strengthening yen.
Right back at ya, Bernanke!
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Forex Technical Update 7/9/2010 – Examining Yen’s Weakness
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