Archive | October, 2011

Japan Intervenes on Yen for “as long as necissary”

31 Oct

The Japanese government has intervened in the currency market to weaken the yen, after the dollar falls to a post-war low of ¥75.31.
Tokyo’s move sent the dollar spiking as much as 4 percent above 79 yen after the intervention.

Dealers have estimated the cap amounts to an estimated ¥5 trillion to ¥6 trillion, the equivalent of around 63 billion to 76 billion euro.

Prime Minister Yoshihiko told parliament the cap was placed on the world’s no. 3 economy, “in order to keep downside risks to the Japanese economists from materializing”.

According to Mr Azumi, the intervention will continue as long as necessary, hinting at a more long term solution than the limited duration government officials suggested in private.

“While I can’t say on what the market may think, we plan to continue intervening until we are satisfied.”

Mr Azumi admitted speculation in the Forex market has pushed the yen to unrealistic levels. The currency has maintained a ‘safe-haven’ position, which has contributed to the rise. The ongoing debt crisis in Europe combined with the slowdown in the US make the safe-haven Yen attractive to traders. Some analysts believe the intervention has been put forward to decrease the level of speculation, rather than changing the strength of the yen.

A strong yen is disruptive to Japan’s export-led economy as it makes goods more expensive to foreign buyers. Whilst the currency is attractive, profitability of goods exported have seen a downward turn following the tsunami and earthquakes in March that led to a $250billion dollar rebuilding effort. This has rocked the supply chain, leading companies such as Toyota Motor Corp. and Sony Corp. in search of more prosperous positions overseas.

It’s not the first time this year Japanese authorities have had to step in to change currency markets… Japan joined G7 nations in March in an attempt to stem the yens rise, later followed by a move in August when Japanese sold the yen in markets.

Despite these previous efforts, the yen has continued to rise resulting in today’s cap. Market players have expressed doubts as to whether it will have much impact, many pointing towards the failure of the previous intervention in September last year.

Leading Japanese Economist for Societe Generale Takuji Okubo believes the government will be required to intervene again: “We do expect the yen to continue to strengthen but then the Japanese government has a good reason to protect a certain level of the yen or at least stop the acceleration of yen strength. So we do expect the yen to appreciate again and the Japanese government to step in again.”