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The following article was published in our article directory on September 17, 2010.
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Japan the first direct intervention foreign exchange market

Article Category: World Affairs

Author Name: xia zihui

To prevent further appreciation of the yen, the Japanese government in Tokyo 15 yen foreign exchange market by selling yen to buy dollars directly intervene. This is the Japanese Government since March 2004 the first direct intervention since the foreign exchange market.

Japanese Finance Minister told the media the day of wild Tianjia Yan, 15, the Japanese government and central bank to intervene in the foreign exchange market to prevent excessive movement in foreign exchange markets. In explaining his reasons for intervention, said that the Japanese economy is still very grim deflation, exchange rate movements may affect economic and financial market stability.

Bank of Japan intervention in the market about around 10:35 local time, affected the U.S. dollar rose rapidly against the yen, the Nikkei stock index has changed dramatically, the rapid rise in just half an hour, or up to 290 points. On the 15th close, the Nikkei index rose 217.25 points to close 9,516.56 points, or 2.34%.

Intervention is imperative

September 14 yen in Japan's ruling party the Democratic Party, continued strength before the election, and continue to create a new high of 15 years. Sept. 14 victory over the incumbent Prime Minister, Naoto Kan, Ichiro Ozawa, after the Challenger, to continue as prime minister has become a foregone conclusion. Ichiro Ozawa, to intervene in the yen's strength as one of the main campaign slogan, it lost Ichiro Ozawa, encouraged by the financial market's confidence in the yen bulls, leading to the yen in the Democratic Party of Japan after the first election results rose immediately and rapidly reach the 83.00 mark, and eventually broke through the fragile line of defense.

In fact, the Democratic Party government in Japan, now Prime Minister, Naoto Kan, the issue of the yen is also a hawk, and has also been a strong advocate to intervene in the yen the main characters.

In the Democratic Party in September 2009 but the first defeat of Japanese Liberal Democratic Party came to power has led the financial and foreign exchange policy is great Finance Minister Hirohisa Fujii. As Sanchaoyuanlao Fujii, has been tolerance for the yen's strength to hold the attitude.

Meanwhile, Democratic Party of Japan took office, the importance of domestic demand and the national welfare, and gradually reduce its dependence on external markets as a campaign slogan and policy agenda. Therefore, the Japanese Democratic Party came to power, to give the outside world the new Japanese government will strive to transform its economy, changes in foreign demand for the domestic economy impression of the economy. So the international community is widely expected that Japan will tolerate a greater degree of strength of the yen foreign exchange market, will not intervene in the foreign exchange market easily. However, as the former Democratic Party government's deputy prime minister Hatoyama, Naoto Kan has a clear stand strong against the yen, the yen's strength for many oral warning. But in June 2010, to succeed Prime Minister Naoto Kan role, but the yen's appreciation of tolerance, so only the Democratic Party of the yen after the first election in 15 years record breaking high of things appear.

Yen mid-term decline is the high probability event

Historically, at this intervention in currency markets before the last intervention in the foreign exchange market in Japan in March 2004, after been no intervention. Japanese government intervention in the foreign exchange market mainly great fanfare in 2003, lasted a long time, the intervention frequency is greater. However, in March 2010, the Japanese government intervention in the yen'd raised funds account limit for intervention in the yen made financial preparations. Intervention in 2003, each time the Japanese government intervention, are immediately made an immediate effect, a short time to maintain a few days, a long time can be maintained for several months, but from the year's point of view, in fact Ri Yuan stronger trend has not changed. U.S. dollar against the yen in early 2003 near the 120 yen, but by the end of 2003, the U.S. dollar against the yen to reach 106 nearby. And to April 2004, the Japanese government no longer intervene in the foreign exchange market after the U.S. dollar against the Japanese yen has reached near 103. In January 2005, the U.S. dollar against the yen to around 101. Can see that the Japanese government's intervention policy in the immediate and short-term, medium-term time horizon is very effective, but in areas where long-term is invalid.

Back of this intervention on short-term decline no doubt reflects the Japanese yen, the Government's intervention policy effective. In addition, from the perspective of short and medium term, the yen since the beginning of 2010 has risen by 11%, the yen is technically necessary requirement for the callback. Meanwhile, Naoto Kan, has been quite critical of the stronger yen. In the first election after Japan's ruling party, Ichiro Ozawa, honor its commitment and not just split the Democratic Party, Naoto Kan, then the position of prime minister is expected to sit tight for two years. Therefore, there must Kan effort to deal with the continuing substantial appreciation of the yen. Therefore, the yen fell the big mid-probability event.

Long-term trend may not be depressed yen

However, the long term, the trend of the yen may not be brought to its knees, the U.S. dollar against the yen and the future challenges of April 1995 there is created a record high of 79.75 chance. Although Japan has been caught because of deflation, an urgent need for the Japanese yen to boost prices, but the Japanese government policy of quantitative easing is currently very large, but the U.S. has begun a second economic stimulus, the Fed has started the disguise secondary quantitative easing monetary policy, and threatened the future will use, if necessary "unconventional" monetary policy, which makes the dollar under the massive monetary stimulus may also weaken. Meanwhile, Europe's economy still faces the pressure of a potential debt crisis, many countries in Europe now have begun to reduce the fiscal deficit, this time next year and the future European economic growth may slow or even recession once again, so the strong euro can not assume the role. Meanwhile emerging economies also need a weak currency to maintain export situation. Therefore, weaker yen does not have a match outside conditions.

Moreover, the Government's intervention from the perspective of Japan, the yen will not be long in accordance with the wishes of the Japanese government to run down. Japanese government intervention in currency markets, as market participants in fact only one in the market to trade with other trading parties, could not provide for the exchange rate and the volatility of the yen, the yen exchange rate can not be manipulated. The current global daily foreign exchange trading volume is 4 trillion dollars, equivalent to 80% of GDP a year in Japan, the Japanese government did not force long-term impact the yen. Moreover, the Japanese government intervention in the yen exchange rate relatively limited funds, it has only short-term effect up to the power of the foreign exchange market. Long-term trend of the yen has its own laws. This decision may still be long the yen strengthened.

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