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The following article was published in our article directory on September 20, 2010.
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Intervention to stop the yen's gains it

Article Category: World Affairs

Author Name: xia zihui

Why the continuous appreciation of the yen

Since early August 2008 to mid-September 2010, the yen, the euro appreciated by 24%, respectively, 33%, highest in 15 years and 9 years high. Yen after the crisis seems to have become a strong international currency. However, the analysis pointed out that the appreciation of the yen is not the Japanese economy achieved in the current round of financial crisis, a contrarian growth, but a cumulative result of economic and financial events.

Crisis, with the slow recovery of the U.S. Jingji sovereignty with the debt problems of the European economy, Japan's economy Biaoxian though not ideal, but continued to maintain a current account surplus, Japan's current account surplus in 2009 Da Dao 2.8 trillion yen, up growth of 36.1%, foreign exchange reserves reached 1.02 trillion U.S. dollars. Prospects of the dollar and the euro under the premise of sustained and stable current account surplus with the international net creditor position, no doubt the yen as the market's second best option.

Moreover, although the debt in the GDP in Japan, accounting for nearly 200%, but 95% of all bonds held by Japanese nationals, the vast majority of government debt is domestic debt, so the experience is extremely low risk of large-scale sell-off, for those hedging demand for the formation of more attractive to investors.

In addition, over the past 15 years, the most popular foreign exchange carry trade funding currency non-none other than the yen. Since the mid-90s of the 20th century, Japan's benchmark interest rates sharply lower, and kept at a lower level. Investors borrow yen at very low interest rate financing, through the foreign exchange market into other higher-yielding currencies or financial products and earn spreads. But the global crisis, the fundamental factor of the carry trade - spread gradually disappeared, all the major currencies have depreciated, investors have to open redeem yen, pushing up the yen.

A ripple

The practice of unilateral intervention in the exchange rate in recent years has left people's attention. The Japanese government into action, is like a ripple.

Associated with the yen, Japan's economic recovery is slowing. Analysis pointed out that Japan's banks has dropped to 0.1% interest rate, monetary policy has been basically ineffective. Meanwhile, the Japanese debt, fiscal policy is also difficult as. Naoto Kan on the 10th of this month the government introduced less than 1 trillion yen economic stimulus plan would also allow the market to conduct a thorough reform of the Japanese economy to lose hope. Devaluation played cards, and strive to maintain a relatively low value of the currency, Japan's practices and the financial crisis is no different from the practice of other developed countries.

However, the vital interests involved, naturally there will be different voices. According to Reuters, on behalf of 20 million the company's European Business Association on the 15th on the practice in Japan, said the opposition: "We do not like the behavior of market manipulation. We can understand the difficulties facing the Japanese economy, but such intervention can have any kind of effect is doubtful. "The organization has always been opposed to any measures that might jeopardize their exports.

However, the Japanese government's intervention in the Japanese export-oriented enterprises, attracted widespread acclaim. The recent yen appreciation against the dollar and the euro have been caused by about two-thirds and five percent of manufacturers suffer. Canon Inc. of Japan, for example, its exports account for 78% of its total sales. It is estimated that this year if the yen against the U.S. dollar in more than 90, up 1 yen each, the company operating earnings will shrink 4.7 billion yen.

Yen gains is difficult to stop

This is has been since March 2004, the Japanese government directly intervene in the foreign exchange market again. The last time the Bank of Japan has spent 14.8 trillion yen, but not the end of 2004 to 102 yen from 107 pulled. Although the immediate intervention, but most analysts believe that long-term view, the intervention will not be sustained, the yen exchange rate in the coming period will remain high.

Effective intervention is bound to be coordinated with other countries. It is worth noting that Japan's unilateral action in the intervention. As "The Wall Street Journal" article in the question to the now daily foreign exchange market has 4 trillion in trading volume, unilateral intervention in the exchange rate can work? This time, analysts estimated that the Japanese used the 2 billion to 17 billion yen of capital. As the Japanese government will continue to interfere with operations, this amount is expected to continue to increase. Although the amount is not small, but the U.S. dollar against the yen compared to 586 billion U.S. dollars in daily volume of transactions are of very little.

Closely associated with the exchange rate naturally economy. The world economy since the spring of last year fell to the bottom, the recovery has been gradual, global trade, after bottoming out in May last year, has rapidly rebound to the global economy is far from optimistic about the time. For the debt-ridden, economic difficulties the United States, a certain degree of depreciation of the dollar is favorable. Similarly, the currency devaluation on the traditionally driven primarily by foreign demand, the euro zone economy, especially the rapid economic recovery in Germany also benefit. This shows that the joint intervention in Europe depreciation of the yen prompted the extremely low probability. Japan to intervene alone, the effect could be dollars, offset by the depreciation of the euro. Moreover, the present situation, if the yen real effective exchange rate breaking 80, has shaken the basis of existing international monetary system, then the possibility of joint intervention on the country a lot.

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