And here’s that paragraph, from JPM’s Niko Panigirtzoglou and team, with our emphasis:
- First, we disagree with the description that FX reserve depletion is QE in reverse. This is because the FX reserve depletion that is happening currently is not an exogenous policy action but represents a policy reaction to capital flows out of EM. But the capital that leaves EM does not disappear from the financial system. In fact, the capital that flows out of EM could find its way back into DM bonds. For example three major manifestations of capital flowing out of EM are 1) the reduction of dollar denominated debt previously issued by EM corporates, 2) the accumulation of dollar deposits by domestic EM corporates or other entities who try to protect themselves against further dollar appreciation, and 3) the withdrawal of EM currency (e.g. Renminbi deposits) by foreign investors who in turn convert them back into dollar deposits.
… and back on the “buy foreign bonds” option. Never mind the former might never happen, let alone happen when the ECB meets next week and does its best not to disappoint.
From Morgan Stanley’s FX team: Read more
Well, we’re cheating a bit here as the anniversary was two days ago, but it still allows for a discussion of the “government versus the central bank” thing going on in Japan and gaining traction everywhere else. It’s been just over a year since Japan’s Ministry of Finance last threw a whole heap of yen at the US dollar — the selling started on October 31 and ended on November 4. Read more
As Neil picked up on already there is a suggestion that the Reserve Bank of Australia is practising some ‘passive intervention’ to hamstring the Aussie’s strength a touch.
It’s easy enough to see why this conclusion has been drawn, even as questions abound about China’s demand, its effect on commodity prices which Australia relies s0 heavily upon and the RBA repeatedly cuts still high interest rates the Aussia has stubbornly refused to fall versus the US dollar:
But there is a potential difficulty attaching the label intervention, even ‘passive’, to this build up at so early a stage. Read more
… just as it becomes the new China, which is no longer the old China. Ok? Probably not, but we may as well go through the argument anyway. The idea is that Japan, sick of yen strength which it struggles to combat in a risk-driven world, sticks a Swiss-style floor under its currency.
It’s not the newest idea and there are suggestions that a de facto floor is already in place anyway but the argument, from Société Générale, is worth running through as there is certainly more chance of an explicit floor being announced now than there was when we last visited the idea. Read more
Draghi-day is just around the corner and JPM’s Malcom Barr is of the opinion that the ECB might just kick off its move by purchasing short-dated Portuguese sovereign debt.
Heck, why not? The arguments to intervene are simple enough. Read more
ECB data published on Monday showed that it once again resisted intervening in government bond markets last week, taking its non-interventionist run to 13 weeks. Read more
The euro dropped below €1.23 as payrolls missed hard and then the yen… jerked:
The Japanese government has confirmed that it intervened unannounced into foreign-exchange markets to weaken the yen last year, for the first time since 2004, the FT reports. Ministry of Finance data released on Tuesday showed Japan carried out Y1.02tn ($13.3bn) worth of unannounced intervention during the first four days of November, after selling a record Y8.07tn on October 31st, when the yen climbed to a post-war high of 75.35 against the dollar. This so-called “stealth intervention” had been widely anticipated, given discrepancies between the rise in yen balances implied by Bank of Japan reserve balance data, and the Y9.09tn of yen-selling MoF had earlier disclosed for the period between October 28th and November 28th. Even so, the more detailed breakdown may increase pressure on Japan from the US. A December report from the US Treasury Department sharply criticised the G7 nation for its recent unilateral interventions to curb yen appreciation. The BoJ has sold the currency four times since late 2010, under orders from MoF.
Japan intervened in the currency market for the first time since August to weaken the yen, sending it down as much as 5.1 per cent against the US dollar, amid growing concerns the yen’s strength could spur manufacturers to shift even more production overseas, the FT reports. Jun Azumi, finance minister, confirmed he had ordered intervention on Monday to halt the rise of the yen after it touched Y75.35 to the dollar, a new postwar high, earlier in the day. The action immediately sent the yen down to Y79.50. “As I have said before, I will take bold measures against speculative moves in the market,” Mr Azumi said, adding that the currency market “is not reflecting the fundamentals of the Japanese economy.” The yen has gained 41 per cent against the dollar and 46.9 per cent against the euro since the beginning of 2008. Tokyo is increasingly worried that the persistent rise of the yen will push the country’s manufacturers to shift more production outside Japan, resulting in job losses in a domestic economy that has for years relied on exporters for much of its growth. For more on the story see FT Alphaville.
Japan’s Ministry of Finance intervened in the currency market for the first time since August to weaken the yen, sending the currency down as much as 5.1 per cent against the US dollar, the FT reports. Jun Azumi, finance minister, confirmed that the Bank of Japan was acting on the MoF’s orders to halt the yen’s “speculative” rise, after the currency touched 75.35, a new postwar high, earlier in the day. The action had an immediate effect, sending the yen down to 79.49. Mr Azumi did not specify the amount of yen sold, and told reporters the currency’s appreciation did not reflect the economic fundamentals of our economy, and said he would continue to intervene until he was satisfied, reports Bloomberg.
… a monetary extravaganza.
There’s a great note from Marc Ostwald of Monument Securities this Thursday morning.
And he gets right to the heart of the issue. Read more
Switzerland’s decision to suppress Swiss franc strength via unlimited foreign exchange intervention will see the Swiss National Bank accumulate untold amounts of euro reserves, writes FT Alphaville. How the SNB chooses to invest those euros will be watched closely. Among the options are investing in core eurozone or periphery debt — both of which carry risks, notably by aligning Switzerland’s interests ever more greatly with those of the eurozone. This is why Deutsche Bank’s George Saravelos says the SNB could be tempted to take reserve management off-balance sheet. One way to do this would be to start its own sovereign wealth fund instead. Read more
Tokyo has intervened in the currency markets for the first time in more than four months, while the Bank of Japan followed the action with additional monetary easing amid growing pressure to stop the yen strengthening against the dollar, the FT reports. It was not clear how much yen had been sold but market participants are expecting further sales on Thursday. The Bank of Japan announced an additional Y10,000bn to its Y40,000bn asset-purchase programme, citing worries about uncertainties in overseas economies and financial markets. Tokyo’s actions followed moves by the Swiss National Bank overnight, which cut rates and said it would increase the supply of francs to money markets to stem the rapid rise its currency was also experiencing. Both the yen and Swiss franc tend to be beneficiaries when investors are in risk aversion mode. For more see FT Alphaville.
While you were sleeping…
Statement from the G7: (emphasis ours) Read more
Some price action in the yen/dollar exchange rate on Tuesday:
Recent exchange action between the Japanese yen and the US dollar:
Ding dong, the dollar’s dead — against its Asian and Antipodean counterparts, anyway.
Keeping up with currency wars can be a busy business.
It’s time, therefore, to give our already extensive intervention list, originally compiled on September 28, an update. And check out the emerging market entrants. Read more
The details of Tokyo’s first yen intervention in six years have emerged from the Japanese finance ministry.
As Bloomberg reports on Friday, Japan sold Y2,120bn in the month through to September 28 in a bid to weaken the yen after it rose to a 15-year high on September 15. This was in many circumstances more than expected: Read more
Ben Davies, CEO of gold hedge fund Hinde Capital, made an interesting point on the subject of currency intervention in a recent letter to investors, as picked up by the King World News blog.
He alludes to the writing of Henry Hazlitt, an inflationista who predicted a dismal inflationary future for the world following the collapse of the fixed rate exchange mechanism of Bretton Woods: Read more
The yen suddenly weakened again on Friday – after four days of fairly solid gains – igniting the FX intervention rumour mill (again):
At last, a chance for browbeaten Japanese finance ministers and bureaucrats to recover some mojo — and blame someone else for the yen’s seemingly irrepressible rise.
After yet another dismal round of promises by Japanese officials to act to curb the currency, some handy new balance of payments figures have provided a new whipping boy for unabated yen strength. Read more
With the S&P 500 up nearly 4 per cent in two days, commodities prices firming, better-than-expected economic data, and core bond prices under pressure, some analysts are (already) seeing a rebound in risk appetite. Indeed, if US non-farm payrolls data for August — due later on Friday — reassure markets, as expected, the risk bulls will probably come out in full force.
All the more curious, then, that the “safe-haven currency”, the yen, is still riding strong, down from last week’s 15-year highs of nearly Y83 to the dollar but still hovering around Y84.38 — despite Japan’s latest political turmoil, constant threats of currency intervention by officials and lacklustre economic data. Read more
Here’s some suggested bedtime reading for Japanese officials, who might be wondering why the more vociferously they threaten action to curb the yen’s growing strength, the more underwhelming are the results.
The old Aesop fable of the “boy who cried wolf” could, in fact, be a modern parable — all in nice bureaucratic speak — about the interminable threats of “appropriate action” emanating from Tokyo — the latest being a classic double-header from Masaaki Shirakawa. The Bank of Japan governor told a press briefing on Monday night that the BoJ would “take appropriate steps at the proper time” and went on to say that “the current pace of outright government bond purchase is the most appropriate”. Read more
As you can see from that RBS chart, since the Bank of Japan’s last big splurge of intervention in 2003/04 the yen has appreciated by 20 per cent against the US dollar. Read more
The Bank of Japan began an emergency meeting on Monday to ease monetary policy, bowing to government pressure to try to curb the yen’s recent rise to a 15-year high, reports Reuters. The yen slipped to about Y85.75 to the dollar on the news, after reaching Y84.63 on Friday.But analysts questioned whether the BoJ would be able to stem the currency’s rise, which analysts warn could delay Japan’s exit from deflation. Earlier, Bloomberg reported that BoJ governor Masaaki Shirakawa returned on Sunday to Tokyo, cutting short his stay at the Federal Reserve’s Jackson Hole conference in Wyoming by one day.
Will they, won’t they - and would it matter either way? These are the key (yen-related) questions of the day, or indeed, the month.
Japan’s signalled (with slightly more feeling this time around) that it might – really, really might – act to curb yen strength after the currency reached a 15-year high of Y83.60 to the dollar on Tuesday. Read more
The yen retreated from a 15-year high of Y83.60 against the dollar to Y84.37 on Wednesday, amid speculation that the Bank of Japan and Japanese government will act to curb the currency, reports Bloomberg. Earlier, the FT reported that Tokyo has been under pressure to take action as the yen’s climb and a stock market slump have fuelled fears of a double-dip recession. Japan’s finance minister on Wednesday said Tokyo would “take appropriate action”; FT Alphaville meanwhile explains why intervention will not work.