Bank Of Japan Rise Yen

David DuRosa David DeRosa, president of "DeRosa Research & Trading", professor of finance at the Yale School of Management and author of "In Defense of Free Capital Markets."

April 1 (Bloomberg) - Bank of Japan gave us a lesson about what can cause damage to the central bank in an attempt to control the currency market.

The dollar traded close to 106 yen at the opening of Tokyo on March 31. By the end of the Asian session, the dollar was at 2 yen below. It was as if the U.S. failed in the air hole and fell like a stone.

It is important that March 31 was a day when most Japanese companies close their balance sheets for fiscal year 2003. Since many of these companies depend on the dollar, the exchange rate of March 31 was a material factor in determining the profit or loss for the year.

As a starting point, the company will use the course at 105.69 yen / $, which has been reported "Bank of TokyoMitsubishi" at 9:55 am.

Please note that if the dollar / yen, strong yen upward movement began about 10:46 am Tokyo time. The companies had full-time to fix on the yen, before it began to rise against the dollar.

Ask what profits would have been Japanese companies, if closed at the rate of exchange at the end of the day, after growth of the yen.

Where was the Bank of Japan?
The idea that Japan is interested in a weak yen to help its companies look profitable - an old theme in the currency market. What happened on 31 March, adds a milestone to the story, whether it is or not.

Growth Yen March 31, raises questions of monetary policy the Bank of Japan. None of the participants in the foreign exchange market are not reported on the Bank's activity in the market to arrest the yen climbing.

There are two ways to interpret the apparent lack of interest from the Bank of Japan. More than beautiful, it is assumed that the Bank of Japan has remained outside the market, because they do not want to manipulate the exchange rate on the day when companies close their balance sheets.

Less than a good interpretation is that after a morning of record on yen, the Bank of Japan was lost every interest in the yen. The mission was completed, the Bank of Japan's "closed the umbrella and provided the foreign exchange market at the mercy of its participants.

The dollar went down and the yen has gone up.

The biggest opponent of excessive mobility

Yet this contrasts with a recent history of the Bank of Japan. Japan only in March, has sold 4.7 trillion. yen ($ 45.2 billion). This amount, which is breathtaking, was actually less than the average for the preceding two months. For the entire fiscal year, which ended March 31, Japan sold 32.9 trillion. yen ($ 316 billion), to counteract the bottom-up momentum of its currency.
Oddly, Japan is the biggest enemy of excessive movement in the currency market - and here is a case where mobility is linked directly with the Bank of Japan.

Probably would never have been such changes, and at such a speed, if Japan had not spent so much time and money supporting other currencies against the yen.

March 31, when it became evident the absence of the Bank of Japan, the yen flew. And that Finance Minister Sadakazu Tanigaki can say about this?

"Not a small movement
Tanigaki said, speaking at a press conference yesterday that the movement was "not small". Then he repeated earlier statements that Japan was ready to take action against currency speculators.

On the other hand, Tanigaki said he wants to allow market mechanisms to determine the exchange rates as they reflect fundamentals. "

Tanigaki also said that their sales of the yen helped to combat deflation, and that for Japan, it is important to continue this program.

Now that the case, when the market reflects the fundamentals, because all else is deflation? What is he going to do then?

As Tanigaki loves "fundamentals", this is something fundamental to it: the movement of the yen on 31 March resulted in severe confusion in the marketplace about what Japan wants to do with the yen.

Speculations and not speculation, the best thing that could make Tanigaki - is clarified to confirm the assumptions market.

Forex Magazine
based on bloomberg.com