Out of nowhere this morning, the Japanese Yen strengthened vs. USD and made a new all-time high at 75.82, breaking what many consider to have been the “line in the sand” at 76. Take a look at the chart below. You can see that the pair had been trading in a narrow range for some time. This brings up two very important issues, the first being what caused this move. The second question is what, if anything, will Japan do about it.
To answer the first question, I am hearing rumors that the move occurred on US dollar weakness as there may be a much larger particpation of the US in the Euro debt bailout through the IMF. If the US just prints more money to give to Europe, that would weaken USD considerably.
But will there be a response by the Bank of Japan? The BOJ has been known to intervene in the currency to weaken Yen to support exports, but they have been loathe to do anything in the face of the Euro debt crisis. They could experience massive losses if there is no resolution. My hunch is that they will wait until next week to see what happens, and then we could see some intervention at that time.
They just announced a plan to help exporters get some currency relief, but this measure is seen as temporary and not affecting the overall value of the Yen. If the problems in the EU are not resolved quickly, then we could see further Yen strength on the risk aversion play.
To answer the first question, I am hearing rumors that the move occurred on US dollar weakness as there may be a much larger particpation of the US in the Euro debt bailout through the IMF. If the US just prints more money to give to Europe, that would weaken USD considerably.
But will there be a response by the Bank of Japan? The BOJ has been known to intervene in the currency to weaken Yen to support exports, but they have been loathe to do anything in the face of the Euro debt crisis. They could experience massive losses if there is no resolution. My hunch is that they will wait until next week to see what happens, and then we could see some intervention at that time.
They just announced a plan to help exporters get some currency relief, but this measure is seen as temporary and not affecting the overall value of the Yen. If the problems in the EU are not resolved quickly, then we could see further Yen strength on the risk aversion play.
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