Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Will Japanese Government Intervene to Weaken the Strong Yen?

Currencies / Japanese Yen Oct 13, 2009 - 03:05 AM GMT

By: Bryan_Rich


Best Financial Markets Analysis ArticleIn the summer of 2007, Bear Stearns confessed it had spent $3.2 billion bailing out two of its funds that were exposed to the sub-prime market. At the same time, the yen carry trade marked its top. Soon thereafter, Bear Stearns went belly up, and the needle on the world’s sentiment shifted towards risk aversion.

Investors who had enjoyed a handsome return from borrowing cheap yen and using that yen to buy high-yielding currencies like the New Zealand dollar, the Indonesian rupiah and the Australian dollar went running for cover! They quickly found that the yen carry trade was like picking up pennies in front of a steamroller …

The success of this trade was highly correlated to the world’s dependency on easy credit. So when the warning signs started flashing that the credit bubble was bursting, the yen soared as investors fled those higher-yielding investments and bought yen to exit their trades.

As a result, since June 2007, the yen has gone up 28 percent against the dollar, its main trading partner.

Adding to that disadvantage, the yen has been exceptionally strong against the currencies of Japan’s key Asian competitors …

Since the middle of 2007, the yen has climbed:

  • 20 percent against the Chinese renminbi (or yuan),
  • 21 percent against the Singapore dollar,
  • 25 percent against the Thai baht,
  • 31 percent against the Indonesian rupiah,
  • And 43 percent against the South Korean won.

That’s a distinct position of weakness for the Japanese because it makes their exports significantly more expensive than their Asian competitors’. Of course, this is horrible news for an economy where exports make up 16 percent of total output! And even with improvements in the global economy, Japan’s exports are still down 37 percent from this time a year ago.

This is why Japan has experienced the worst contraction of all major economies and is expected to have the weakest recovery. And that’s why there is speculation that Japan could return to recession — as soon as the fourth quarter of this year.

Will a New Ruling Party in Japan Strengthen the Yen?

Hirohisa  Fujii revised his initial remarks about the yen.
Hirohisa Fujii revised his initial remarks about the yen.

Japan’s new ruling party, the Democratic Party of Japan, entered office last month. And the newly-appointed finance minister, Hirohisa Fujii, was happy to publicly comment on exchange rates.

But his initial remarks that a strong yen could actually be good for the economy caught the markets by surprise and sent the yen soaring even further …

Japanese exporters strongly disagreed with him. So the finance minister was reminded that when he said “good” perhaps he should have said “bad.”

Since then, Finance Minister Fujii has done an about face, joining other major countries with verbal threats against the strength of their respective currencies (in relation to a weakening dollar).

This means that as the U.S. dollar continues to give back its gains from last year’s crisis-driven flight to safety, the possibility of currency intervention by countries like Japan increases.

Japan’s Previous Yen Intervention

Japan has a reputation for being sensitive to movements in the currency markets and for taking action. Its heaviest periods of intervention tended to coincide with slower economic growth rates — like it’s experiencing now.

The last time Japan intervened to weaken the yen was between 2003 and 2004 …

Over the course of 126 days the Ministry of Finance purchased $315 billion and sold yen in the open market. These steps ultimately sent the yen 11 percent lower.

But the overall success of interventions in changing the long-term path of a currency is not great. A lot depends on how it’s done …

Manufacturers and exporters would welcome an intervention weakening the yen.
Manufacturers and exporters would welcome an intervention weakening the yen.

Changing the path of a currency tends to have a higher success rate when countries act together in support of (or against) the same currency. These coordinated interventions also have a greater spillover effect on other currencies.

Last weekend, leaders from the G-7 met in Istanbul. Although all G-7 members have made increasingly frequent individual statements about currencies, the G-7’s collective message on currencies didn’t change! It was identical to its communiqué of April that said:

“Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We continue to monitor exchange markets closely, and cooperate as appropriate.”

So when you consider the theme of coordination in the policy responses to the global crisis, if a major currency intervention takes place, the probability of a coordinated response in currencies is high.

And for Japanese exporters dealing with a yen near 14-year highs against the dollar … that would spell relief.



This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit .

Money and Markets Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules