Central Banks Japanese Yen Intervention
Assault on Yen
Japanese authorities along with G-7 leaders ambushed the currency market on Thursday evening. Like a scene out of Braveheart, or any war movie where the militia wait for their rival to fall asleep and then strike, the major banks from around the world, including the Federal Reserve, sold off large quantities of Yen just after the New York market was closing down. Although we seemingly expected that the G-7 would be forcing the hand in this situation, our expectations were to see intervention over the weekend rather than overnight. This is the first coordinated intervention by central banks that we have seen since the euro’s weakening back in 2000.
On Thursday the Yen reached a historical high of 76.25 against the Dollar. This record high forced Japanese Economic and Fiscal Policy Minister Kaoru Yosano to “warn investors that the yen was not reflecting the Japanese economy’s fundamentals”. Then after a conference call with G-7 leaders, the major banks decided to infuse the markets with Yen.
Why Devalue the Yen?
One of Japans major economic drivers are its exports. Japan is the third largest economy in the world and it needs a devalued Yen in order to increase its exports and increase profits. If Japan does not control the rise in Yen, it will hurt its exports and slow down its economy.
As we close for the weekend, it would be interesting to see how markets open on Monday. We expect more intervention over the weekend and the Yen to devalue against other currencies in the long run. Overall this roller-coaster of a market brings uncertainty with it, though there may be opportunities to cash in nicely on the Yen, we recommend to be very vigilant of the market until there is a clearer direction. As the market is changing and recent intervention is driving the yens, like always you MUST use very tight PHYSICAL stops on all your entries. We will continue closely monitoring the situation in Japan and the effects it will have in the currency market.