5 Reasons Why The Yen Intervention Will Hold

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The massive intervention by the BOJ to weaken the yen sent USD/JPY more than 200 pips higher. The move is far from over. The first intervention in 6 years comes after months of failed verbal intervention. Here are 5 reasons why this move will be powerful.

There are significant differences between the failed interventions by the Swiss National Bank and this move:

  1. Long buildup: this move followed months of warnings and negotiations with other central banks. While this move is the sole work of the BOJ without joining forces, central banks and traders were anticipating this move and learn to accept it.
  2. Japan means business: they keep on pushing forward, all the time. It wasn’t a one time move.
  3. US figures support the move: The intervention comes after the influx of bad US figures ended. Recent numbers such as are better – Non-Farm Payrolls and retail sales have been hopeful. Better US figures mean a stronger USD/JPY.
  4. Europeans are OK with it: They would prefer a coordinated move but they do note the rapid equiproportional appreciation of the yen and said it was bad for the recovery.
  5. The Chinese factor: China recently passed Japan as the world’s No. 2 economy. China enjoys a low-valued currency which it fully controls. The US has urged China to release the yuan but the moves have been subtle to say the least. In the meantime, Japan’s yen strengthened and weakened Japan’s economy. A weaker yen could indirectly be a political interest of the US. So maybe the move wan’t coordinated with the US, but they might back it somehow.

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

14 Comments

  1. Just another opinion.I fail to see how this article is of any benifit to any trader??

  2. This article shows that there are valid reasons why we should not be pessimistic, if not overly optimistic on the intervention.
    Moreover, we have reasons to disapprove those boncus, contra-productive, bear-minded USD/JPY sellers who are still trying to manipulate the market by saying that the pair will go to 80 or even 75. Those with sell positions below 83 yesterday are most likely doomed with this intervention, and for the right reasons.
    Those numbers aren’t just numbers for traders. They represent the economy of the world’s third largest that is factually hurting under the current strong yen value due to its export-based economy.
    The point about US and Europe being ok with this, even when they’re not joining, is spot on. What the world’s economy (including the still recovering and fragile US & Euro economy) do not need is another free-fall and massive recession triggered by Japan’s collapse in Asia. They CERTAINLY don’t want that to happen.

  3. Good for Japanese export. Or else Japanese product will be more expensive than European product where posted the same quality.

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  8. Joel Gehrke on

    The problem with both Japan and China exploiting their positions as creditors of the US to devalue their own currencies into a position of relative weakness is that their prosperity is based on destroying the manufacturing base of the world’s best customer. Do that in the USA; do that in Europe, and who is left to buy your wares? Nigeria? Japan has a debt:GDP ratio higher than the USA, and China’s sale of USD/JPY like there’s no tomorrow. This is nothing other than a karmic boomerang for BOJ USD/JPY buying in 2003-4; which destroyed US textile, steel, and auto industries, and killed the American consumer on which Japan was depending. Smart move, eh? So much for enlightened self interest.

    Now we have the makings of a currency war. China will be all too glad to allow Japan to bid up the USD/JPY back to 100, if only so that China can sell its own USD holdings at a higher price and thereby diversify away from the USD. Very dicey game.

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