Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
AI Tech Stock PORTFOLIO NAME OF THE GAME - 29th June 22
Rebounding Crude Oil Gets Far Away from the Bearish Side - 29th June 22
UK House Prices - Lets Get Jiggy With UK INTEREST RATES - 28th June 22
This “Bizarre” Chart is Wrecking the Stock Market - 28th June 22
Recession Question Answered - 28th June 22
Technical Analysis: Why You Should Expect a Popularity Surge - 28th June 22
Have US Bonds Bottomed? - 27th June 22
Gold Junior Miners: A Bearish Push Is Coming to Move Them Lower - 27th June 22
Stock Market Watching Out - 27th June 22
The NEXT BIG EMPIRE WILL BE..... CANZUK - 25th June 22
Who (or What) Is Really in Charge of Bitcoin's Price Swings? - 25th June 22
Crude Oil Price Forecast - Trend Breaks Downward – Rejecting The $120 Level - 25th June 22
Everyone and their Grandma is Expecting a Big Stocks Bear Market Rally - 23rd June 22
The Fed’s Hawkish Bite Left Its Mark on the S&P 500 Stocks - 23rd June 22
No Dodging the Stock Market Bullet - 23rd June 22
How To Set Up A Business To Better Manage In The Free Market - 23rd June 22
Why Are Precious Metals Considered A Good Investment? Find Out Here - 23rd June 22
UK House Prices and the Inflation Mega-trend - 22nd June 22
Sportsbook Betting Reviews: How to Choose a Sportsbook- 22nd June 22
Looking to buy Cannabis Stocks? - 22nd June 22
UK House Prices Momentum Forecast - 21st June 22
The Fed is Incompetent - Beware the Dancing Market Puppet - 21st June 22
US Economy Headed for a Hard Landing - 21st June 22
How to Invest in EU - New Opportunities Uncovered - 21st June 22
How To Protect Your Assets During Inflation - 21st June 22
AI Tech Stocks Current State, Is AMAZON a Dying Tech Giant? - 20th June 22
Gold/Gold miners fundamental checkup - 20th June 22
Personal Finance Tips: How To Get Out Of A Tough Financial Situation - 20th June 22
UK House Prices Relative to GDP Growth - 19th June 22
Will Global Markets Be Pushed Deeper Into Crisis Event By The US Fed? - 19th June 22
Useful Things You Need To Know About Tweezer Top Candlestick Pattern - 19th June 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Japanese Yen on Central Bank Intervention Watch

Currencies / Japanese Yen Aug 07, 2010 - 07:34 AM GMT

By: Bryan_Rich


Best Financial Markets Analysis ArticleAs major global economies are beginning to feel the threat of another bout with recession, Japan is dealing with an extra challenge: An unwelcomed strong currency.

Weak structural economic fundamentals around the world and tough austerity are proving to squash the feeble recovery. And the likelihood of central banks returning to, or intensifying, the easy money policies are growing.

But these dynamics have not held back the yen’s surge. In fact, Japan’s currency has gained over 40 percent against the dollar since the economic crisis erupted in the middle of 2007. And despite the signs of global economies slowing, 8 percent of those gains have come in the past two months.

Here’s the question: With an economy that has suffered more than any other major economy in the 2007-2009 recession and is still stalled in record deflation, why would Japan’s currency be rising?

For one, the world has been deleveraging. When times were good, global capital piled into the carry trade — primarily borrowing cheap yen to buy higher yielding global assets. As such, the reversal of that trade has been a huge driver of yen strength, clearly marking a low in the yen at the onset of the crisis.

Now, in an environment dominated by risk aversion, the yen is continuing on its path of gains, thereby causing an increasingly threatening disadvantage for Japanese exporters — the lifeblood of the Japanese economy.

Exporters Feeling the Pain

A strong yen is taking a toll on Japan's auto industry.
A strong yen is taking a toll on Japan’s auto industry.

This week, Japan’s automakers have been reporting earnings for the most recent quarter. But what’s stealing the headlines is what companies are saying about the outlook for their business, given the ever rising yen.

And it’s not good:

  • Honda’s CFO said making vehicles in Japan at a dollar/yen exchange rate of 85 is “not economically feasible.”
  • Honda’s CEO said if the Japanese government can’t stabilize the yen, key export businesses would have no choice but to leave the country.
  • Nissan’s COO said he’s “very concerned” about the yen’s strength.

The rising yen against the dollar makes Japanese cars and electronics more expensive for American consumers, Japan’s biggest export market.  And it makes the revenue earned from its U.S. manufacturing plants worth less when it’s translated back into their home currency.

Meanwhile, Japan’s key competitors for world exports, China and Korea, have become more attractive substitutes for global consumers.

In the past three months the Korean Won has weakened 14 percent against the yen. That means, in terms of trade, South Korea has gained a significant competitive advantage over Japan’s exports.

And because China keeps its currency more closely in-line with the dollar, its yuan has weakened just over 8 percent against the yen in the past few months.

Probability Rising for FX 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 Japanese government has a history of doing what is necessary to weaken the yen.
The Japanese government has a history of doing what is necessary to weaken the yen.

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

Over the course of 126 days the Ministry of Finance sold yen in the open market to purchase 315 billion U.S. dollars. 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 …

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.

The 85 level in USD/JPY seems to be where Japan says uncle … hostility ticks up and politicians start feeling the heat.

Following the Dubai sovereign debt shock in late 2009, the yen spiked to 84.83, a new 14-year high against the dollar. That prompted considerably tougher talk from Japanese officials.

They said the yen movements were “one-sided” and that, when necessary, they would engage the U.S. and the euro zone about currency issues. Moreover, the Bank of Japan was said to be checking rates with banks — a tactic used by central banks to send a message to the markets.

That intervention threat combined with the disequilibrium between the yen and the Japanese economic situation got the market’s attention, which marked a bottom in USD/JPY.

But unless there’s some official influence to turn the tide of the yen now, that November 2009 bottom may be tested in the coming days.



P.S. I’ve been showing my World Currency Alert subscribers how to use exchange traded funds to profit from rising and falling currencies. Click here to discover more.

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

© 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