JPY

HEARD ON THE STREET





Tokyo's Yen Shift Poses Trader Puzzle

By RICHARD BARLEY AND SIMON NIXON
A DOW JONES COLUMN


How should investors respond to Japan's surprise intervention to curb the strength of the yen? That depends largely on whether the intervention turns out to be a political gesture, limited to the roughly Y2 trillion so far spent; or something more like the 2003-2004 intervention when the Ministry of Finance intervened to the tune of Y35 trillion. Western policymakers, believing the exercise to be misguided and potentially damaging, will be hoping for the former; but Tokyo certain has room in its budget plans to fund a bigger program.

In the foreign-exchange markets, the initial impact on exchange rates other than dollar-yen has been limited. While the yen has fallen 3.3% against the dollar, the dollar hasn't gained against other currencies. But if the yen is no longer a one-way trade, investors could switch to commodity currencies like the Australian dollar, says BNP Paribas. If dollar weakness causes emerging currencies to gain, the risk is that central banks elsewhere in Asia and Latin America also intervene to stem currency appreciation.

Tokyo's move is also likely to affect fixed-income markets, particularly as the Bank of Japan seems intent on leaving the funds in the market, making this intervention a form of quantitative easing as well. Japanese government bond yields fell Wednesday and could fall further if more liquidity floods into the market. But it will be crucial to watch Japanese fiscal policy, since further quantitative easing could increase sovereign credit risk. Japanese sovereign credit-default swaps have so far remained flat at 67 basis points.

Of course, it's possible a lower yen will succeed in boosting Japanese exporters, which over time will be reflected in investors switching out of bonds into equities. But exports have never been Japan's problem: the real issue is the lack of domestic demand. And on that score, Tokyo's intervention, by reducing the value of domestic earnings, may be self-defeating. That would point to Japan's actions being a political gesture, albeit a futile one. Tokyo's rhetoric suggests otherwise.

--(Simon Nixon is European editor of Heard on the Street. He can be contacted on +44 207 842 9206 and simon.nixon@wsj.com. Richard Barley is a writer for Heard on the Street. He has covered the European corporate credit market in one form or another since 1998. He can be reached at +44-20-7842-9406 or by email: richard.barley@dowjones.com)

Nouriel Roubini has a different take:


FX hot potatoes: China outsources its intervention to Japan by buying JBGs, forcing a pissed Japan to intervene & thus pissing off EU & US

I think this is what happened
however if BoJ does not continue then JPY could be bought again and end of story that puts BoJ
in a trap even more if PBOC hikes.

This is an article related to Ashraf's post regarding the China-Japan tension and maneuvering:


Yen Intervention Fans Flames Of Anti-Japanese Rage Across China


Anti-Japanese rage reached the highest level in years last night in China, says The Standard:
http://www.thestandard.com.hk/news_detail.asp?pp_cat=13&art_id=103008&sid=29601951&con_type=1

In Guangzhou, protestors hurled beer bottles at the Japanese consulate. In Tianjin, they damaged Japanese buildings and fired ball bearings at a foreign school. In Hong Kong, activists stormed the Japanese consulate.

Even Beijing has endorsed massive protests this weekend.

Anti-Japanese sentiment has to do with a captured fishing boat and territorial protests -- but it also coincides with a yen intervention that will challenge China's export advantage.

American politicians are already siding with Japan. Rep. Sander Levin today said Chinese currency policies caused the Yen intervention, which in turn hurts American exports.

What we really don't want to see, however is an escalating currency war, which could force a dollar intervention and all sorts of chaos.

Read more:http://www.businessinsider.com/yen-intervention-fans-flames-of-anti-japanese-rage-across-china-2010-9#ixzz0ziwvJcb8

@ said. Sure, but in the 80s E.Europe could hardly be described as leading the charge of the "unacceptable face of captialism" (as Heath called Tiny Rowland). The Cold War was "won" by the West - if there is such a thing as winning.

@frankbrit
never heard of the axes us cities warsaw moscow