Japan Intervention May be Warning To China – CMC

Japan’s large JPY-selling intervention Wednesday “could be a loud warning shot to Beijing, given the (recent) record buying of Japanese government bonds by China,” says Ashraf Laidi, chief market strategist at CMC Markets. China in July increased net buying of Japan financial assets, all or nearly of which thought to be in JGBs. Some analysts speculate China’s JGB buying could be meant in part to keep JPY strong, weighing on Japan economy, which China looks to surpass as world’s second biggest this year. Japan Finance Minister Noda recently questioned “true intention” of China’s JGB purchases. Given Noda raising such suspicions, Japan’s post-intervention statements on resolve to pursue further action “sound like a warning shot to Beijing’s yen-purchases as opposed to the average currency speculator,” Laidi says. Adds, Beijing could counter by tightening monetary policy, which could upset risk trade, possibly push safe-haven JPY higher.

UPDATE: September 16, 2010 06:23 ET (10:23 GMT)

www.intermoney.org

Goldman Sachs: Japan’s intervention will be a success

Goldman Sachs: Japan’s intervention will be a success

Analysts at Goldman Sachs Group Inc. in London believe that Japan’s currency intervention will turn out to be successful.

According to the specialists, the efforts of Japanese monetary authorities will drive yen’s down to 90 yen per dollar in a year.

As a result, Japan may have to sell more yens in order to prevent national currency from excessive gains that affect the country’s economy.

There are different estimates for Japan’s intervention – from $1.2 billion by the Nikkei newspaper to $20 billion from BNP Paribas SA’s point of view.

UPDATE: September 16, 2010 04:17 ET (08:17 GMT)

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George Soros agree on Japanese Intervention

Soros Applauds Japan Intervention to Weaken Yen

Billionaire financier George Soros said on Wednesday that Japan was right to intervene in foreign exchange markets to bring down the value of the yen.

“Certainly, they are hurting because the currency is too strong so I think they are right to intervene. They had a real estate boom and then a crash in banking … It’s 20 years now, and they are still just struggling along.” Soros said at a Reuters Newsmaker event.

Japan sold yen in the market on Wednesday for the first time since 2004 and said it would do so again to prevent the currency’s rise from hurting exporters and threatening a fragile economic recovery.

Billionaire financier George Soros spoke at a Reuters Newsmaker event on Wednesday.

tag: JAPAN’S INTERVENTION TO BRING DOWN VALUE OF YEN

UPDATE: September 15, 2010 10:40 ET (14:40 GMT)

www.intermoney.org

Naoshima: Expect BOJ to Take Further Monetary Steps To Fight Deflation

Naoshima: Expect BOJ to Take Further Monetary Steps To Fight Deflation

Japan’s Economy, Trade and Industry Minister Masayuki Naoshima said Wednesday that he expects the Bank of Japan to take further monetary steps to fight deflation shortly after the government and the central bank intervened in the currency market for the first time in more than six years, Kyodo News reported.

“In terms of stepping up cooperation between the government and the BOJ, and especially to show our strong resolve to end deflation, I expect more monetary policies from the BOJ,” Naoshima told reporters in Tokyo.

He also stressed that the market intervention was in line with the government’s policy, approved by the Cabinet on Friday, to “take decisive actions, including intervention, when necessary” to stem theY’s rise against major currencies.

“I think there was a strong impact on the market in the sense that the Japanese government made its will clear,” he added.

The policy was stipulated in the new stimulus package the government compiled to tackle the recent upsurge of theY and downside risks to Japan’s economic growth.

Asked about what the government would like the U.S. dollar-yen exchange rate to be, Naoshima said while it is difficult to tell, the assumed rate level among Japanese companies is 90Y to the dollar and the point is how “one thinks about the gap.”

www.Intermoney.org – Market Talk

Wednesday. September 15, 2010

M-Talk: BOJ intervention, Washington May Be Supportive of JPY Move

M-Talk: BOJ intervention, Washington May Be Supportive of JPY Move

U.S. is likely to provide implicit support for Japan’s intervention to weaken JPY, by withholding criticism, unless Japanese government attempts to weaken JPY over sustained period, says Peter Kenen, professor of economics at Princeton University and former Treasury consultant under several U.S. administrations. “This is aimed at warning people off and breaking the one-way bet that Japan has been experiencing,” he adds, noting move, which he calls “both feasible and sensible,” will likely be effective to counter upward drift in JPY. USD/JPY last at 84.85, well above intraday low at 82.85

Something similar has happened before. Eight years ago, panic in the global financial markets sent the yen surging 20% in less than two months and other markets collapsed, particularly emerging markets, as investors rushed to repay their yen. Then, as Japan’s economy worsened, the trade became popular once again.

The Japanese Yen could feel pressure from a renewal of the carry trade

But what is the yen carry trade? Put simply, it is borrowing at low interest rates in yen and using the loan to buy higher yielding assets elsewhere. During the past decade, the trade has become a “staple” for many investors, says William Pesek Jr on Bloomberg. Perhaps the most popular form of the strategy exploits the gap between US and Japanese yields. Anyone borrowing for next to nothing in yen and putting the money into “US Treasuries” (US government bonds) has received a double pay-off: from an interest rate difference of more than three percentage points and from the dollar’s rise against the yen. Investors make their profit when they reverse the trade and pay back the yen loan.

A carry trade strategy seeks to profit from the interest rate differential between two currencies. The approach is to select a currency pair where you sell (go short) a currency with a low interest rate, while simultaneously buying (going long) a currency with a higher interest rate. When you hold this currency pair open in your trading account, you must pay interest on the short position, while you receive interest on the long position. If you receive more in interest than you pay, this difference – known as interest rate carry or simply carry – is retained in your account as profit.

Does that mean the yen carry trade is back today?

www.Intermoney.org – Market Talk

Wednesday. September 15, 2010