Yen's jump has market asking, 'where's the BOJ?'
Friday September 19, 4:48 am ET
By Kazunori Takada
TOKYO, Sept 19 (Reuters) - Some say it's a sign of change in Japan's currency policy. Others say it's only temporary -- a diplomatic strategy to avert criticism at a key international meeting.
Change or not, many market participants were left scratching their heads after Japanese monetary authorities appeared to allow the dollar to slip below the crucial 115 yen level, which traders view as a key defence line for Japan.
Amid speculation Japan would stay out of the market ahead of the weekend Group of Seven (G7) meeting in Dubai, where currencies are expected to be a key topic, the dollar fell to a two and a half year low near 114.70 yen (JPY=) on Thursday.
Investors were surprised since Japanese officials have not allowed the dollar to weaken below 115 yen in the past two years.
Japan views that level as vital to keeping its exports competitive, the key to its nascent economic recovery.
But some analysts think it could get difficult for Japan to keep carrying out aggressive intervention if they come under fire from other G7 countries in Dubai. "It's almost certain Japan's intervention will be criticised at the meeting," said Tohru Sasaki, chief forex strategist at JP Morgan Chase.
"Japan's growth was higher than that of any other G7 country in the April-June quarter. So it is unconvincing for Japan to argue the importance of a weak yen to policy-makers from the euro zone, where growth is negative," Sasaki said.
"Market players are becoming more aware of the risk that it will become more difficult (for Japan) to intervene in forex markets," he added.
Many traders believe that without Japan intervention, the yen will keep rising given the recent recovery in the key Nikkei (^N225 - News) share average to 15-month highs, thanks mostly to foreigners who show no signs of slowing down.
Exchange data on Friday showed that foreign investors were net buyers of Japanese stocks for the 22nd straight week to September 12. They have bought a net 5.8 trillion yen worth of shares during that spree.
"Unless the dollar recovers to around the 118 yen level in the next two or three days, I think we are going to have to expect further falls to around 113.80," said Osamu Takashima, technical analyst at Bank of Tokyo-Mitsubishi.
JAPAN'S COMMITMENT UNCHANGED?
Many analysts, though, are not convinced Japan has given up the fight to keep the dollar above 115 yen.
Instead, Japan may just be waiting until the G7 meeting is out of the way.
"I don't think Japan's policies have changed," said Hideo Kumano, senior economist at Dai-ichi Life Research Institute.
"The authorities are very sensitive about (the dollar's fall below) 115 yen and I think they will continue to intervene even if they are criticised at the G7 meeting."
It wouldn't be the first time diplomatic wrangling has put a damper on the authorities' penchant for yen-selling.
In the first seven months of this year, Tokyo spent some nine trillion yen ($78.08 billion) in intervention only to stay out of the market in August, which analysts attributed to U.S. Treasury Secretary John Snow's visit to Japan earlier in the month.
But traders think the authorities were back at it in September.
"The end of the fiscal half-year is approaching (at the end of September) and if they stop now, what was the nine trillion yen they've spent this year for?" said a trader at a major Japanese bank.
Government officials, meanwhile, have been unwavering in their efforts to talk down the yen, with ministers warning almost daily that the government would take appropriate action as needed, a statement often interpreted as a willingness to intervene.
Finance Minister Masajuro Shiokawa, who cancelled his trip to Dubai due to health reasons, said on Friday sudden movements in exchange rates were a problem for the economy and that authorities would take necessary measures to deal with them.
"A movement of two yen in a week is a real problem for manufacturers and trading companies," he told reporters after a cabinet meeting.
"The government must show concern if moves become sudden," he said.
By the end of Friday's trade, the dollar had plunged to around 115.28 yen from around 117.40 at the beginning of the week. ($1=115.25 yen) |
