Archived IMT (2011.03.22)

As more ink is spilled on Japan, its rising domestic debt, high external assets and stubbornly strong currency, it is important to reiterate what I said last Friday. Despite the recent pullback in yen crosses (yen strength), I expect last weeks coordinated G7 yen intervention to work considering rate hike expectations priced in for the Bank of England and the European Central Bank. Short of a double-dip global recession, the same may apply for the Bank of Canada, whose currency is propped by supply and demand dynamics in the oil sector. This leaves us with the Federal Reserve, which may be the weakest (and most important) link considering expectations for further QE beyond June. ====== DESPITE THE prospects for intervention success from a monetary policy stance, concerted action may fail (and yen rises anew) in the event that financial markets react negatively to the aforementioned tightening aspirations of the BoE, ECB and BoC. The prospect for further oil strength, rising inflation and slowing growth remains a real possibility, whose most likely outcome could lead to immature rate hikes (as in summer 2008 by the ECB) followed by a UK and Eurozone contraction in Q4. ======== GOING BACK TO JAPAN: here is an interview I conducted last summer discussing i) Japans choice to keep interest rates low ii) its strong currency and iii) its external vs. domestic debt http://youtu.be/fvXqTViK7Yk MORE FREQUENT INSIGHTS ON TWITTER http://twitter.com/ alaidi