Japan interventions in currency markets

Discussion in 'Economics' started by mtzianos, Jul 5, 2005.

  1. I don't get it, I really don't.

    E.g., in today's 6mo US debt auction, 40% of the issuance was absorbed by Foreign Central Banks. Not by "real" investors, just mindless, price-insensitive buying by government agencies (foreign central banks).

    Also today, ALL commodities (except the "monetary metals" of gold/silver) are ON FIRE:
    oil +1.4%
    natural gas +4.5%
    corn +8%
    orange juice +5.5%
    soybeans +5.8%
    wheat +4.3%
    lean hogs +2.8%
    copper +2.9%

    At the same time, all currency pairs vs USD are FALLING. Not just today, but falling hard for MONTHS. So these basic goods become EVEN MORE EXPENSIVE for the citizens of those countries, day after day. Not just energy/oil/natgas.

    So, WHAT ARE those countries thinking (mainly Japan in this case), when they're continuing "vendor financing" of US absorbing and rolling-over USDs held by their Central Bank, YET let their own currencies DROP even lower every day, despite the huge rise in practically all commodities.

    Japan could liquidate parts or whole of the 750bn USD (largest reserves of any country in the world), "forcibly" accumulated during previous years' interventions (most during 2003-2004), let USD/Yen go to 105 and soften the blow of price inflation on their citizens.

    (Note: Unless the Japanese Ministry of Truth has managed to convice its subjects (like the respective one in US) that despite the commodity index going up +40% since Jan-2005 still means no inflation.)

    TANKAN report 1-July-2005 said big Japanese manufacturers were still counting for USD/JPY at 103-104 for 2005 (and right now it's at 112), so it can't possibly be in order to "protect exports" by employing mercantilistic policy.

    Can someone help me understand this "Japanese conundrum"?
  2. I like the phrase "Japanese conundrum". And I like to hear from some experts' explanation on this too.

    There are so many conundrums these days. Not good.
  3. Last I heard, Japan desperately wants inflation -- they've been fighting deflation for the last decade. But a commodity-driven rise in prices is probably not exactly what they are looking for. In any event, I think their attitude is that they will gladly suffer some elevation in prices so long as their exports benefit from a weaker yen.
  4. EBenson


    ...yea,you heard it,prolly on TV,newspapers,Fortune,Forbes etc...every country on this planet can easily create inflation if it wants to,there are bulletproof methods ever since the old romans.
    It still amuses me to see how most people here on ET think that the world begins and ends with the USA and that people outside the US dont know jack
    Japan,China,S Korea,Taiwan,Euro-countries may just as well burn all the T bills the very next second after they pay for it and they know it .
  5. Ebenson, what's with the hostility?

    mtzianos asked why is it nations like japan don't liquidate their treasury holdings to ease inflation on their citizens, I just gave him one explanation that seems to fit in with "standard" rhetoric -- who knows if it's true? And no, pumping liquidity into the system does not guarantee rising prices, you only get that in the extreme end when the entire currency system of the nation collapses (hyperinflation). Big fat shrug to you.
  6. Goldman Sachs Commodity Index, expressed in Yen is +40% YTD (esignal data has bad ticks, hence the spikes):

  7. Japan needs all the inflation it can get.

  8. The Japanese economy is still export driven. The manufacturers may have been "counting" on 103-104, but that was just a reflection of the forward rates. A couple of years ago the exporting sector was screaming bloody murder when the Yen strengthened towards (dropped to almost) 115. The manufacturing sector would be more profitable with a weaker Yen, especially with the rising cost of production (higher energy and commodity costs) and to a lessor extent, higher shipping costs. In Japan, the government is especially observant of the desires of big business.


  9. Also a couple of years ago the BOJ figured out that they get more for their intervention Yen spent (think bang for the buck, but from their point of view) during periods of Yen weakness than trying to fight Yen strength.


  10. Let me try to interpret what you're suggesting and sum it up:

    Basic goods (foodstuff, energy etc) expressed in Yen is going higher every day (commodity index in JPY is +40% YTD -see chart above-).

    By letting Yen fall (or actually actively intervene on weakness to further destroy its value intentionally as you suggest) the ONLY thing the Japanese government accomplishes is to effectively make a e.g. -10% wage cut (in terms of real purchasing power) across the board to Japanese workers.

    Unless the debasement of the currency is being offset by a 10% rise in nominal wages.

    So, are they just cutting workforce wages and lowering living standards of Japanese population, to maintain export industry products' "affordability" to certain markets (mainly China and US) and retain high levels of employment?
    #10     Jul 6, 2005