Thursday, March 17, 2011

G7 Yen Intervention: Let's Just Blame Seculators

I hate to think how many prop desks blew up. And it's specifically on USD/JPY pair.

From AP (3/18/2011):

TOKYO (AP) -- The yen fell from historic highs Friday after the Group of Seven major industrialized nations promised coordinated intervention in currency markets to support Japan's recovery from a catastrophic earthquake and tsunami.

The G-7 pledge came after the yen hit an all-time high against the dollar Thursday, possibly threatening Japan's exports and hampering its economic recovery from the Mar. 11 quake that triggered an unfolding nuclear crisis.

After the announcement the dollar rose to 81.26 yen fro 79.45 yen, but it was unclear whether that was due to government intervention or to traders reacting to the news. The dollar briefly slumped to 76.53 yen on Thursday -- an all time low for the U.S currency and a record high for the yen.

Japan's Finance Minister Yoshihiko Noda said the government would intervene in the Tokyo market once morning trading opened Friday. But ministry spokespeople declined later to confirm whether that happened.

Noda said the planned intervention was meant to calm "volatility" and G-7 governments had no target exchange rate.

And the Finance Minister of Japan thinks it is still the "market" - an exchange of goods/information - when all that's been propping it up is the government's pledge and will to buy up anything to keep it going.

Japanese newspapers specifically blame "speculators" for the violent move of yen since the earthquake, rather than more or less normal and rational "risk-off" trades such as carry-trade unwind and repatriation of foreign currency back to Japanese yen by the Japanese companies that operate worldwide.

Even the newspaper that should know a little bit better about financial markets, Nikkei Shinbun (in Japanese, 3/18/2011), blames "speculators", and praises the move by G7:

One week after the earthquake and tsunami hit Japan, G7 took a resolute move against currency speculators who disrupt the market...
Sad it is that they are going to use the earthquake/tsunami disaster as the financial market "put".


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