Forex Flash: Market calm undermines the dollar - BTMU
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USD/JPY
FXstreet.com (Barcelona) - Yesterday's Thanksgiving holiday in the US that extends for many through today also along with the public holiday in Japan means market activity is likely to be muted once again today.
Derek Halpenny, European Head of Global Markets Research at Bank of Tokyo Mitsubishi UFJ notes that despite the holidays, for the rest of Asia, equities closed modestly higher again and that momentum for the Yen appears to have turned, recouping some of the recent heavy losses.
He notes that the partial reversal is in part down to comments from Shinzo Abe, who is reported by the Nikkei Shimbun to have told the Wall Street Journal that intervention in ineffective and that an LDP government would be less active in the FX Market that the current government. Halpenny quotes him as saying that currency intervention "is not in his mind at all" due to the difficulty in getting international coordination.
Japan has been more active in recent years with good reason like the earthquake in March 2011 which saw the government sanction intervention on four occasions overtly and on four occasions covertly for a total amount of JPY 16.4trillion (USD205bln). However, Halpenny is keen to point out that this policy seems to be a direct contradiction of the LDP election policy of creating a public-private fund to purchase foreign bonds. That would still be intervention but he feels that the LDP want to present it as something other than straight forward government intervention, more in line with Sovereign Wealth Funds seen elsewhere in the world.
He continues to question whether the international community would be any less against a plan like that is debatable but another key point made by Abe, was an apparent backing off from the open threat to changing the BoJ law. If the BoJ were to agree to a 2.0% inflation target, rather than 1.0%, then there would be no need to alter the law.
Halpenny finishes by noting that "As stated here before, that is probable but only after a government-chosen Governor takes over from Mr. Shirakawa in April. There's a lot to clarify and get through before the financial markets are likely to see any shift in government policy - which makes us think that USDJPY remains at risk of undergoing some correction lower."
Derek Halpenny, European Head of Global Markets Research at Bank of Tokyo Mitsubishi UFJ notes that despite the holidays, for the rest of Asia, equities closed modestly higher again and that momentum for the Yen appears to have turned, recouping some of the recent heavy losses.
He notes that the partial reversal is in part down to comments from Shinzo Abe, who is reported by the Nikkei Shimbun to have told the Wall Street Journal that intervention in ineffective and that an LDP government would be less active in the FX Market that the current government. Halpenny quotes him as saying that currency intervention "is not in his mind at all" due to the difficulty in getting international coordination.
Japan has been more active in recent years with good reason like the earthquake in March 2011 which saw the government sanction intervention on four occasions overtly and on four occasions covertly for a total amount of JPY 16.4trillion (USD205bln). However, Halpenny is keen to point out that this policy seems to be a direct contradiction of the LDP election policy of creating a public-private fund to purchase foreign bonds. That would still be intervention but he feels that the LDP want to present it as something other than straight forward government intervention, more in line with Sovereign Wealth Funds seen elsewhere in the world.
He continues to question whether the international community would be any less against a plan like that is debatable but another key point made by Abe, was an apparent backing off from the open threat to changing the BoJ law. If the BoJ were to agree to a 2.0% inflation target, rather than 1.0%, then there would be no need to alter the law.
Halpenny finishes by noting that "As stated here before, that is probable but only after a government-chosen Governor takes over from Mr. Shirakawa in April. There's a lot to clarify and get through before the financial markets are likely to see any shift in government policy - which makes us think that USDJPY remains at risk of undergoing some correction lower."
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