China, you may have noticed, has switched rather abruptly from being a massive buyer of foreign currencies to a major seller. Some people — including some relatively influential policymakers — are worried that this switch from suck to blow, as it were, could cause Treasury yields to spike. That fear may be animating some of those who think the Fed should adjust its schedule of rate hikes, or even engage in additional large-scale asset purchases.
Japan’s Ministry of Finance confirmed it carried out “stealth intervention” in the country’s currency by selling yen five times in the final quarter of 2011, reports Bloomberg. The ministry’s quarterly data confirmed speculation that the nation carried out so-called stealth intervention following a record daily sale of 8.07tn yen ($105bn) on October 31, when the Japanese currency climbed to a post World War II high of 75.35 against the dollar. Japan sold a total of 1.02 trillion yen in currency interventions during the first four days of November, according to the report.
Japan’s finance minister hasn’t ruled out intervention should the yen continue to rise against the dollar, particularly if “speculative moves” continue to the push the currency higher, the WSJ reports. The strength of the yen has been hurting Japanese companies. The loose monetary policy of the US Fed has been exacerbating the rate. Recently release indicators have revealed Japan’s first trade deficit since 1980, a change which could slow the yen’s ascent. The currency has been considered a safe haven which investors have piled into over the course of the most recent financial crisis.
Reuters is reporting that Poland’s central bank stepped into the spot market for the fourth time in less than three months on Wednesday to help support the zloty versus the euro, which was once again nearing levels last seen in 2009.
But the Bank’s intervention seems to be ever less detectable in terms of price trends: Read more
Tracking the causes of the commodities crash is starting to feel like peeling an onion.
One layer gets pulled back only to reveal another, and then another — and then you start to cry. Last week we had UBS analysts blaming “extreme positioning short the dollar and long commodities.” Read more
The Group of Seven industrialised nations have agreed to co-ordinated currency intervention for the first time in a decade to help Japan recover from its devastating earthquake, tsunami and nuclear crisis, the FT reports. Authorities in Japan, the eurozone, the UK, Canada and the US agreed on Friday to help weaken the yen in a rolling intervention that began at 9am in Tokyo, which immediately pushed the yen down from above Y79 against the US dollar to below Y81. FT Alphaville asks whether Friday’s coordinated G7 intervention will prove to be a one-day wonder?
The yen fell the most since 2008 against the dollar, the Nikkei 225 Stock Average rose nearly 3%, oil rallied and US index futures climbed on Friday after central banks intervened to weaken Japan’s currency, reports Bloomberg. The yen sank 3.5% to Y81.79 per dollar at 12:30am in Tokyo and Japanese government bonds slid after G-7 nations started joint intervention in the foreign exchange market for the first time in more than a decade after the yen soared to a post-World War II high, threatening Japan’s recovery from the March 11 earthquake. The FT earlier noted that while G7 officials would not say how much yen they would sell or discuss their target price, their main goal was to stabilise the Japanese currency and it was unlikely to keep intervening for a long period.
The yen is still strengthening on Friday after the country’s biggest ever earthquake on record struck off the northeastern coast. The theory, so it goes, is that Japanese investors will bring funds back home from abroad, as the country begins rebuilding. Read more
Brazil has launched a fresh push to curb its rising currency, amid renewed efforts by fast-growing economies to restrict damaging inflows of “hot money”, reports the FT. In a move against speculative trading, the central bank announced higher reserve requirements for domestic banks against their FX positions. The decision follows Chile’s move this week to intervene to curb the peso. The Brazilian real, which has gained about 13% against the dollar since May, slid on the news, falling 0.8% in New York on Thursday to R$1.68. In a separate report, the FT says other emerging economies could follow Brazil and Chile’s example.
The spokesman, Japan’s chief cabinet secretary Yoshito Sengoku, was explaining the sentiments behind PM Kan’s pledge in a TV interview on Wednesday night to stake his “political life” on addressing Japan’s rising social welfare costs and increasing public debt, a day after he said “now is the time” to face these problems.
The prime minister “was expressing his deep sense of crisis and resolution about the sustainability of social security as the aging population increases under a low birth rate,” Sengoku said on Thursday. “The supporting fiscal conditions don’t allow for any delays, it’s finally approaching the edge of a cliff.” Read more
South Korea is showing its uncanny knack for timing with its planned new steps to curb capital inflows, just ahead of its star role as host of the upcoming G20 meetings — which are likely to be dominated by discussions of “currency wars“.
G20 finance ministers, meeting from this Friday in the South Korean city of Gyeongju, are trying to lay the groundwork for the November summit of world leaders in Seoul. Their key concern is averting a round of competitive devaluations by countries hell-bent on shoring up their own tentative economic recoveries. Read more
Perhaps it was the heady rush that comes with taking long-promised action — that nearly-forgotten thrill for Japan’s oft-derided central bank and finance ministry officials that comes with boldly intervening to curb the currency.
Or maybe it was the embarrassment of Japan’s sudden climb-down after its recent diplomatic row with China, and the national chagrin over Beijing’s obvious relish at maintaining its freeze of high-level bilateral contact — despite Tokyo’s acquiescence. Read more
The Bank of Japan on Tuesday shifted unexpectedly to a course of quantitative easing, surprising markets and drawing praise from Tokyo policymakers who are increasingly challenging its independence, reports the FT. Ministers lauded a BoJ policy package that includes a conditional pledge to hold interest rates at virtually zero to tackle deflation and a scheme to buy up to Y5,000bn ($60bn) in financial assets. In an editorial comment, the FT says the BoJ should build on these steps. But market reaction, as the WSJ notes, was muted “in part because BOJ policy has been so loose for so long that, as policymakers admit, there’s little more of significance they can do”.
Beijing on Thursday said the bill passed by the US House of Representatives aimed at punishing China for allegedly undervaluing its renminbi violates global trading rules and could damage bilateral relations, reports the FT. The House voted 348-79 on Wednesday to approve the bill, which would allow the US to use estimates of currency undervaluation to calculate countervailing duties on imports from China and other countries. A Chinese commerce ministry spokesman said China’s trade surplus with the US was not due to its currency, while other officials warned there would be repercussions if the measure was approved. China RealTime rounds up economists’ reactions.
We know this is getting repetitive, but well, yes, the yen — was back on the rise, or rather, the dollar was showing renewed weakness on Thursday as the Japanese currency headed for its highest level since Tokyo’s September 15 intervention in currency markets.
This despite growing speculation that Tokyo may be preparing to intervene again in currency markets, after its mid-September intervention initially succeeded in bringing the yen down from Y82.88 to Y85.87. This morning it’s back at Y83.80 to the USD. Read more
Every now and then, someone comes along and delivers a neat soundbite that captures the zeitgeist and blitzes both the mainstream media and the blogosphere.
Such is the case of Guido Mantega, economist, politician and Brazil’s finance minister, who, as the FT (and just about everyone else) reports on Tuesday, has warned that an “international currency war” has broken out, as governments around the globe compete to lower their exchange rates to boost competitiveness. Read more
Naoto Kan, Japan’s prime minister, said on Thursday that his government was ready to take further “resolute action” to stem the yen’s rise, despite complaints from US and European politicians about Tokyo’s unilateral intervention, reports the FT. Tokyo on Wednesday intervened in currency markets for the first time since 1994, driving the yen more than 3% lower against the dollar to just Y85.52. On Friday morning in Tokyo, the yen was at Y85.71. Japan analyst Richard Katz writes in the FT that Tokyo should stop ‘flailing impotently’ on the currency front and move to policies that genuinely help growth.
Japan’s surprise intervention in currency markets caught some of the world’s largest hedge funds by surprise, inflicting sharp reversals as the yen tumbled, reports the FT. The Japanese currency saw its biggest daily fall this year on Wednesday, dropping more than 3% from a 15-year high of Y82.88 against the dollar after Japan’s finance ministry said it had intervened in the FX market, the first such action by Tokyo in six years. UK-based hedge funds such as AHL, Winton Capital Futures fund and the Aspect Diversified fund all suffered on their bullish yen positions, said people familiar with their performances.
Tim Geithner, US Treasury secretary, on Thursday urged Congress to increase pressure on China to force it to let its currency rise and said the Obama administration was examining ways to encourage Beijing to act, the FT reports. But speaking before the Senate banking committee on Thursday, Geithner stopped short of promising the aggressive legal or administrative measures that US lawmakers are demanding. Beijing meanwhile hit back at criticism of its currency policy, saying America’s problems were not of China’s making. RealTime Economics says that in his testimony, Geithner may have revealed why the administration has been so reluctant to get tough on China: “he doesn’t want to burn bridges for future business opportunities”.
In the tsunami of commentary triggered by Tokyo’s move on Wednesday to intervene in currency markets to curb the yen’s rise, some views of its implications strike us as more cogent than others.
For example, Nomura’s Tokyo-based team led by currency strategist Yunosuke Ikeda (who, we might add, was proven correct on recent predictions of intervention moves) writes on Thursday (our emphasis): Read more
US lawmakers on Wednesday threatened legislation against Chinese currency intervention as Washington filed two new trade cases against Beijing at the World Trade Organisation, the FT reports. The moves were aimed at what the US has called distortionary and illicit measures by Beijing to favour its own companies. A congressional hearing on Wednesday considered proposals to allow the US to treat Chinese currency undervaluation as an illegal export subsidy when imposing emergency tariffs. Bloomberg reports that US Treasury secretary Tim Geithner said the US is considering ways to urge China to let its currency appreciate more quickly.
Japan’s central bank may face government pressure to boost monetary stimulus after Tokyo on Wednesday moved unilaterally to curb the yen’s rise, reports Bloomberg. Authorities sold the yen after it reached Y82.88 per dollar on Wednesday, briefly pushing it to Y85.78, before it rose on Thursday morning to Y85.46, and to Y111.16 against the euro. Officials indicated on Wednesday that Japan may intervene again on Thursday if needed. But, asks FT Alphaville, will it all come to nought? Opinions are mixed, as AtlanticWire notes in a commentary round-up.
Tokyo intervened in the currency markets on Wednesday for the first time since 2004, driving down the yen from Y82.88 to the dollar to Y85.78, drawing criticism from Europe over its decision to act unilaterally, the FT reports. The intervention also marked further easing of monetary policy, as the Bank of Japan left the yen used to buy dollars in the market. The move, which an FT editorial calls a “very political intervention”, followed Tuesday’s victory by Prime Minister Naoto Kan against challenger Ichiro Ozawa – who had called for a weaker yen – in a leadership battle. MoneySupply meanwhile examines the implications for China and its currency stance.
Japan on Wednesday intervened in the currency market for the first time since 2004, a day after Prime Mininster Naoto Kan won a leadership contest against Ichiro Ozawa, who had promised a weaker yen, reports Bloomberg. Finance minister Yoshihiko Noda on Wednesday said Japan had contacted other nations about the step, without confirming whether Tokyo took the measure unilaterally. The yen tumbled 1% to Y83.97 per dollar at 11am in Tokyo (3am BST), after reaching a fresh 15-year high of Y82.88. The benchmark Nikkei 225 climbed 1.5% to 9,436.76.
So the fat lady has sung – or rather, the sumo wrestler has grunted – and Japan’s latest political circus is over (for now).
Naoto Kan has retained his somewhat battered position as the country’s prime minister, defeating the “shadow shogun” of his party — but only narrowly by 206-200 in the crucial vote among parliamentarians in the ruling DPJ. And, as the FT reports, all eyes are on the yen. Read more
Such is the state of Japanese politics that it’s big news these days to be able to report that Japan’s prime minister is still Japan’s prime minister, reports FT Alphaville. Naoto Kan on Tuesday afternoon fended off the most serious challenge to his hitherto short and intense leadership of the ruling DPJ from the controversial Ichiro Ozawa. The yen rose further in response, reaching Y83.09 to the dollar on Tuesday from Y83.60 earlier, driven by the view that Kan’s endless pledges to act to curb yen strength will continue to prove hollow. Read more