To: Tom Smith who wrote (278464 ) 3/1/2004 5:29:23 AM From: Tom Smith Respond to BOJ has been the major global player propping up the dollar and could do it because of the relative strength of the yen.... Despite heavy losses in the forex markets, Fukai was recently quoted to say: "The BOJ will not tolerate a strong yen". Be careful what you wish for, Fukai-san... If the yen is making a turn/multi-year top and is now headed for 120 or above, the BOJ selling yen for dollar related assets/treasuries will only exacerbate the yen's decline. In fact, at the same rate of yen printing there should be an acceleration in the rate of depreciation of the yen. A rapid decline in the yen should mean significant increases in imported Japanese inflation. If such inflation manifests, and this is the key, the BOJ will be domestically pressed to reduce yen sales/treasury purchases (but perhaps not the rhetoric) and the USD will partially lose their support. Who is going to step up to the plate and take over the Japanese position as prop-master? Which country or consortium of countries experiencing a nacent economic recovery will next invite inflation to keep the USD from falling further? Schroeder is volunteering the euro for sacrifice....the ECB govenors may have different thoughts. I'm sure that some in Washington think when China readjusts the RMB-USD peg, making the RMB/yuan stronger, that the BOC will therefore be in a position to purchase more USD assets/prop the dollar or at least reduce it's rate of decline....again, the Chinese may have other uses for their spare cash....My conclusion is that the yen prop for the USD is ending at this USD support level and, without help, both fall from here......
