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Japan Announces Currency and Stock Market Intervention

Currencies / Japanese Yen Dec 19, 2008 - 08:35 AM GMT

By: Mike_Shedlock

Currencies Best Financial Markets Analysis ArticleCountries are now playing a game of "Top This" to see who can do the dumbest things. Please consider the following: Japan plans to buy $227 billion in shares to boost market Japan's government said Thursday it is submitting a bill to parliament allowing for the purchase of 20 trillion yen ($227 billion) in stock to help stabilize the Japanese stock market, Kyodo news reported.


Under the bill, the Banks' Shareholding Acquisition Corporation, originally created in January 2002, would resume buying shares from banks and other entities, the Japanese news agency reported. The bill would be introduced early next month "with an eye to implementing the measure by the end of March," the report quoted lawmakers as saying.

The Liberal Democratic Party had initially considered just 10 trillion in stock purchases, but the size was roughly doubled to 20 trillion yen at the request of its ruling coalition partner, the New Komeito party, the report said.

If stocks are ready to go up they will. If not they won't. Intervention will accomplish nothing other than create an environment of suspicion that stocks need to be propped up or they would fall. When intervention starts, investors are deprived of normal market signals and will not know if share prices have really bottomed or not. This silliness by Japan is going to create massive mistrust, and massive mistrust is never good for the markets.

More Currency Intervention Madness

Not content with stock market lunacy alone, Nakagawa Says Japan May Take Currency Action

The yen fell against the euro on speculation the Bank of Japan will today lower borrowing costs and say it will buy commercial paper to combat a global recession.

The yen may also weaken for a second day against the dollar on speculation Japanese officials will intervene to stem its surge to a 13-year high. The dollar declined against the euro, heading for its biggest weekly loss since the 15-nation currency's 1999 debut, after the Federal Reserve introduced near- zero interest rates and said it would focus on buying debt, a policy known as quantitative easing.

“It's clear the BOJ has to respond with some combination of rate cuts and additional measures to improve liquidity,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. “The alternative of doing nothing would be taken as tacit approval of sharp yen appreciation.”

It is absolutely not clear that Japan needs to do anything here. In fact, it is absolutely clear that Japan should not do a thing. It has been proven time and time again that currency intervention does not work.

Please consider Currency Intervention And Other Conspiracies .

.... Note those numbers. Japan spent hundreds of billions in 2003 starting in August, attempting to prop up the dollar.

Japan halted its currency intervention in March of 2004 according to the International Herald Tribune article EU officials soften stance on yen's weakness .

Yen vs. Japan's Intervention 2003-2004

If ever there was proof of the absurdity of currency interventions there it is. Ironically the Yen started plunging shortly after Japan stopped trying to force down the value of the Yen.

Japan is prepared to embark on a fool's mission twice. Once with the Yen and a second time with their stock market. Neither can possibly work and the latter will create massive mistrust.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2008 Mike Shedlock, All Rights Reserved

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