Just one month ago, the level of 103 for USD / JPY seemed inevitably provoke the Bank of Japan intervention.
Once the levels of 106, 105, 104 and now 103 have fallen like a chain of dominoes, many traders wonder whether intervene Ministry of Finance of Japan at all. Since the last intervention, the Ministry of Finance in March 2004, the political and economic situation has changed. In this article we will attempt a closer look at some of the new challenges facing Japan, which makes intervention more problematic policy for the country than in the past. While few analysts believe that the Ministry of Finance of Japan has refused to intervene at all, many traders believe that Japan may be better to wait for a global consensus before returning to the foreign exchange markets to support the dollar. We will explore some factors that could cause such a movement and try to weigh the pros and cons of intervention?
The reasons against intervention
1. Movement of Asian Trade Since 1990. on the current share of China and other Asian countries in Japan's exports rose from 1 / 3 (31.1%) to almost 1 / 2 (48.6%). Exports to China and Hong Kong increased from 6.7% to almost 20% (19.3%) of the total Japanese exports. A deeper look at the figures showed that Japan's exports to China alone is on the verge of an exceptional share of the U.S. market. The value of this large-scale changes in the direction of greater intra-Asian trade is enormous. One key difference between trade with Asia and trade with the U.S. and Europe is the fact that the majority of traders in Asia made in yen rather than dollars. This dynamic creates a natural advantage for Japanese exporters who do not have to worry about competitive pressures because of the currency in the so-called ienovoy zone. As Asia continues to become progressively increasing part of the Japanese export market, and thus contribute more to the Japanese corporate profits, the need for regulatory intervention in the USD / JPY will decline. Given that the U.S. economy has faced, it seems insurmountable for the foreseeable future, the deficit of current account and federal budget, Japan is probably made the strategic decision that the future path of economic growth is in Asia. Because the value of the U.S. market declines in importance for Japan, the need for aggressive intervention the Bank of Japan significantly reduced.
2. Natural resources have become cheaper. Since the 1980's, Japan has been very diligently at reducing the oil as the main component of its energy needs. Japan's dependence on oil was 77% before the first oil crisis in 1973, but now is less than 50%. This decline reflects the progress of industrial sector in the use of alternative energy resources like nuclear energy.
However, Japan must still import 99.8% of its oil and is very vulnerable to higher energy costs, which are very large impact on its industrial sector. Because oil is traded in dollars, much stronger yen reduces the negative impact on the Japanese economy, higher prices for natural resources like oil or steel. For example, in terms of yen, the import prices of crude oil were 50.5% lower than in September 2004 than at their peak in the 1980's, when the barrel of oil cost $ 35.80. A strong yen has demonstrated its value to the economy, even when we compare the current price since the mid 1980's - a period during which oil prices were relatively low. In contrast to the middle price of the 1980th at $ 23.80 per barrel, current price in yen, indeed, 17.7% lower. Since the market began to understand that due to limitations of supply and increasing demand from China,
oil prices could remain above $ 40 a barrel even for a long time, the pressure on Japan's decision not to intervene in the foreign exchange market can be enhanced. Indeed, looking at recent data on the Japanese Index of import prices, we see that, although oil prices remained at a record peak in October, the Japanese oil costs, actually fell to -2.6%, helping to reduce the overall index to -0.8%; as the yen went up against the dollar.
3. Political pressure. "I would just like to say that this is a real problem, of course, if you have some international traffic in exchange relations, and you have only one part of the world (Europe), which actually pay the bills for it," so rightly said Klaus Libsher, a member of the Governing Council of the ECB. With the euro risen from 1.24 to 1.30 in a few weeks, many European politicians are becoming concerned that the euro single currency bears the main load rearrangement. Most global experts agreed that the dollar should decline against major currencies to ease the U.S. current account deficit. However, if the dollar decline is much stronger against the euro than against the yen, while European exports will be disproportionately punished in the global market. In addition, because the U.S. is trying to exert pressure on China to increase the rate of the yuan, the Japanese officials would be hard to press to start the intervention, which can also substitute them under international criticism.
Reasons for intervention
1. Possible repetition of a recession. In March 2004, Japanese GDP growth rate of 6.4% for the quarter. By September of this year, gross domestic product growth slowed to a virtual level, showing lightly increase of 0.3%. Clearly, 70% of the first burst of energy costs, which led to a global slowdown in demand, was the root cause of the rapid reduction of GDP growth. However, during the same time, yen increased by 7% against the dollar - rate USD / JPY fell from levels of 112 at the end of March to 103 now. As exports are the foundation of its economy, Japan is seriously suffering from the relentless appreciation of its currency. Until now, Japanese manufacturers, which have some of the highest rates of productivity in the world can absorb the increase of the yen from its profits. However, as the USD / JPY was in 105 boxes, Japanese exporters are caught between rising costs of natural resources like oil and steel and the inability to raise prices because of competition from the dollar zone. "Toyota Motor Corp." and "Nissan Motor Co." this month accused the rise in the yen unexpected decline in profit in the third quarter. President of "Toyota Motor Corp." Fuji Cho said that the strengthening of the yen "unpleasant." As the situation continues, the Japanese industrial sector will begin to suffer (many analysts argue that already), which will lead to another recession in the Japanese economy. 3 Having experienced the strongest decline in the 1990's, the Japanese authorities are very sensitive to any factors that may push the country back into a state of economic malaise. Recently, Japanese officials made a series of verbal interventions against the further strengthening of the yen. The head of the Bank of Japan Toshihiko Fakui said, "We are closely following the movements of exchange rates ... all exchange rates." Fakui warned that he is willing to act as soon as the order is received from the Ministry of Finance. He noted that recent movements have been caused by speculation of short-term players. In the past, whenever the Bank of Japan referred to the "speculators" as the root cause for the movements in the FOREX market, this led to "punish" those traders through intervention. The central bank can just wait for when the market reaches extreme levels, such as the levels of February this year that will allow it to achieve maximum effect, since its intervention will lead to greater momentum at the expense of operation
stop-orders, enhancing the movement upwards.
2. Reduced rates of the Bank of Korea. 12 November, given that inflation is under control due to the rapid growth rate of Korean Won, Korea's central bank cut a key interest rate by a quarter point to 3.25% to stimulate higher economic growth. The decision caught the market unawares. In explaining this decision, head of the Bank of Korea Park Syang said, "domestic economy as a whole is in a downward trajectory, as consumption, investment and construction remained sluggish, with a slowdown in exports." Although the Korean economy is actually growing at 5%, Mr Park said that "conditions (this month) is almost the same as in the past month, but a lower U.S. dollar against the local currency has become a negative factor for economic growth, although it has positive effect on price stability. " Since Korea is a significant competitor to Japan both in Asia and the global export market, the actions of monetary authorities of Korea are a big challenge for the Japanese economy and provide additional pressure for intervention in the near future. In recent years, Korea's export brands, such as "Samsung" and "Hyundai" and started to beat the Japanese products, not only because of the price difference, but also on the basis of quality. Isho -
dya of the dynamics of this, Japan will be unable to compete against Korean products due to advantages in quality. The devaluation of the Korean won may allow the goods to capture greater market share, if the Bank of Korea will lamblike by the Bank of Japan. If Japanese manufacturers begin to lose their Korean competitors due to exchange rates, the pressure on the Bank of Japan to begin the intervention will grow exponentially.
3. Historical levels of intervention. As shown in the table, over the past year (and even the past 3 years), the Ministry of Finance of Japan conducted the intervention at levels much higher than the current. They have hitherto prevented the rate of USDJPY down nastol low as 103.40 in March, without intervention. However, it was immediately before the start of the new fiscal year. With growth already recovering, and considering that most exporters are not likely zahedzhirovalis accordingly at current levels, we expect that the Ministry of Finance will become more and more closely at current levels.
History of the Bank of Japan intervention
Once the levels of 106, 105, 104 and now 103 have fallen like a chain of dominoes, many traders wonder whether intervene Ministry of Finance of Japan at all. Since the last intervention, the Ministry of Finance in March 2004, the political and economic situation has changed. In this article we will attempt a closer look at some of the new challenges facing Japan, which makes intervention more problematic policy for the country than in the past. While few analysts believe that the Ministry of Finance of Japan has refused to intervene at all, many traders believe that Japan may be better to wait for a global consensus before returning to the foreign exchange markets to support the dollar. We will explore some factors that could cause such a movement and try to weigh the pros and cons of intervention?
The reasons against intervention
1. Movement of Asian Trade Since 1990. on the current share of China and other Asian countries in Japan's exports rose from 1 / 3 (31.1%) to almost 1 / 2 (48.6%). Exports to China and Hong Kong increased from 6.7% to almost 20% (19.3%) of the total Japanese exports. A deeper look at the figures showed that Japan's exports to China alone is on the verge of an exceptional share of the U.S. market. The value of this large-scale changes in the direction of greater intra-Asian trade is enormous. One key difference between trade with Asia and trade with the U.S. and Europe is the fact that the majority of traders in Asia made in yen rather than dollars. This dynamic creates a natural advantage for Japanese exporters who do not have to worry about competitive pressures because of the currency in the so-called ienovoy zone. As Asia continues to become progressively increasing part of the Japanese export market, and thus contribute more to the Japanese corporate profits, the need for regulatory intervention in the USD / JPY will decline. Given that the U.S. economy has faced, it seems insurmountable for the foreseeable future, the deficit of current account and federal budget, Japan is probably made the strategic decision that the future path of economic growth is in Asia. Because the value of the U.S. market declines in importance for Japan, the need for aggressive intervention the Bank of Japan significantly reduced.
2. Natural resources have become cheaper. Since the 1980's, Japan has been very diligently at reducing the oil as the main component of its energy needs. Japan's dependence on oil was 77% before the first oil crisis in 1973, but now is less than 50%. This decline reflects the progress of industrial sector in the use of alternative energy resources like nuclear energy.
However, Japan must still import 99.8% of its oil and is very vulnerable to higher energy costs, which are very large impact on its industrial sector. Because oil is traded in dollars, much stronger yen reduces the negative impact on the Japanese economy, higher prices for natural resources like oil or steel. For example, in terms of yen, the import prices of crude oil were 50.5% lower than in September 2004 than at their peak in the 1980's, when the barrel of oil cost $ 35.80. A strong yen has demonstrated its value to the economy, even when we compare the current price since the mid 1980's - a period during which oil prices were relatively low. In contrast to the middle price of the 1980th at $ 23.80 per barrel, current price in yen, indeed, 17.7% lower. Since the market began to understand that due to limitations of supply and increasing demand from China,
oil prices could remain above $ 40 a barrel even for a long time, the pressure on Japan's decision not to intervene in the foreign exchange market can be enhanced. Indeed, looking at recent data on the Japanese Index of import prices, we see that, although oil prices remained at a record peak in October, the Japanese oil costs, actually fell to -2.6%, helping to reduce the overall index to -0.8%; as the yen went up against the dollar.
3. Political pressure. "I would just like to say that this is a real problem, of course, if you have some international traffic in exchange relations, and you have only one part of the world (Europe), which actually pay the bills for it," so rightly said Klaus Libsher, a member of the Governing Council of the ECB. With the euro risen from 1.24 to 1.30 in a few weeks, many European politicians are becoming concerned that the euro single currency bears the main load rearrangement. Most global experts agreed that the dollar should decline against major currencies to ease the U.S. current account deficit. However, if the dollar decline is much stronger against the euro than against the yen, while European exports will be disproportionately punished in the global market. In addition, because the U.S. is trying to exert pressure on China to increase the rate of the yuan, the Japanese officials would be hard to press to start the intervention, which can also substitute them under international criticism.
Reasons for intervention
1. Possible repetition of a recession. In March 2004, Japanese GDP growth rate of 6.4% for the quarter. By September of this year, gross domestic product growth slowed to a virtual level, showing lightly increase of 0.3%. Clearly, 70% of the first burst of energy costs, which led to a global slowdown in demand, was the root cause of the rapid reduction of GDP growth. However, during the same time, yen increased by 7% against the dollar - rate USD / JPY fell from levels of 112 at the end of March to 103 now. As exports are the foundation of its economy, Japan is seriously suffering from the relentless appreciation of its currency. Until now, Japanese manufacturers, which have some of the highest rates of productivity in the world can absorb the increase of the yen from its profits. However, as the USD / JPY was in 105 boxes, Japanese exporters are caught between rising costs of natural resources like oil and steel and the inability to raise prices because of competition from the dollar zone. "Toyota Motor Corp." and "Nissan Motor Co." this month accused the rise in the yen unexpected decline in profit in the third quarter. President of "Toyota Motor Corp." Fuji Cho said that the strengthening of the yen "unpleasant." As the situation continues, the Japanese industrial sector will begin to suffer (many analysts argue that already), which will lead to another recession in the Japanese economy. 3 Having experienced the strongest decline in the 1990's, the Japanese authorities are very sensitive to any factors that may push the country back into a state of economic malaise. Recently, Japanese officials made a series of verbal interventions against the further strengthening of the yen. The head of the Bank of Japan Toshihiko Fakui said, "We are closely following the movements of exchange rates ... all exchange rates." Fakui warned that he is willing to act as soon as the order is received from the Ministry of Finance. He noted that recent movements have been caused by speculation of short-term players. In the past, whenever the Bank of Japan referred to the "speculators" as the root cause for the movements in the FOREX market, this led to "punish" those traders through intervention. The central bank can just wait for when the market reaches extreme levels, such as the levels of February this year that will allow it to achieve maximum effect, since its intervention will lead to greater momentum at the expense of operation
stop-orders, enhancing the movement upwards.
2. Reduced rates of the Bank of Korea. 12 November, given that inflation is under control due to the rapid growth rate of Korean Won, Korea's central bank cut a key interest rate by a quarter point to 3.25% to stimulate higher economic growth. The decision caught the market unawares. In explaining this decision, head of the Bank of Korea Park Syang said, "domestic economy as a whole is in a downward trajectory, as consumption, investment and construction remained sluggish, with a slowdown in exports." Although the Korean economy is actually growing at 5%, Mr Park said that "conditions (this month) is almost the same as in the past month, but a lower U.S. dollar against the local currency has become a negative factor for economic growth, although it has positive effect on price stability. " Since Korea is a significant competitor to Japan both in Asia and the global export market, the actions of monetary authorities of Korea are a big challenge for the Japanese economy and provide additional pressure for intervention in the near future. In recent years, Korea's export brands, such as "Samsung" and "Hyundai" and started to beat the Japanese products, not only because of the price difference, but also on the basis of quality. Isho -
dya of the dynamics of this, Japan will be unable to compete against Korean products due to advantages in quality. The devaluation of the Korean won may allow the goods to capture greater market share, if the Bank of Korea will lamblike by the Bank of Japan. If Japanese manufacturers begin to lose their Korean competitors due to exchange rates, the pressure on the Bank of Japan to begin the intervention will grow exponentially.
3. Historical levels of intervention. As shown in the table, over the past year (and even the past 3 years), the Ministry of Finance of Japan conducted the intervention at levels much higher than the current. They have hitherto prevented the rate of USDJPY down nastol low as 103.40 in March, without intervention. However, it was immediately before the start of the new fiscal year. With growth already recovering, and considering that most exporters are not likely zahedzhirovalis accordingly at current levels, we expect that the Ministry of Finance will become more and more closely at current levels.
History of the Bank of Japan intervention
Forex Magazine
based on www.fxstreet.com
based on www.fxstreet.com
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