Dollar remains strong against yen amid intervention rumors [08 Mar 2004] LONDON (AFP) The dollar was mixed against European currencies after hitting a five-month high against the yen on speculation the Bank of Japan has been buying dollars to stem a rise in the Japanese currency. The euro rose to 1.2372 dollars from 1.2358 late on Friday in New York. The dollar stood at 112.09 yen against 112.02 on Friday, the first time it breached the 112 mark since late September. As well as helping to sustain growth in the world's second largest economy, a lower yen bolsters the balance sheets of Japanese companies at the fiscal year-end on March 31 by raising the value of overseas profits. "As we're coming into the fiscal year-end, the Japanese monetary authorities are trying to push the dollar higher," said Ian Stannard, currency strategist at BNP Paribas. The BoJ, under the authorisation of the Japanese Ministry of Finance, is hoping its policy of buying dollars will help Japanese companies close their books at the end of the fiscal year at "more favourable" rates, said Stannard. Japanese companies traditionally seek to repatriate profits from overseas, for the most part denominated in dollars, before the end of the fiscal year in an attempt to improve their balance sheets. The repatriation lifts the value of the yen, which the central bank often counters by buying dollars. According to market sources, the BoJ splashed out around 20 billion dollars (16 billion euros) on Friday to support the dollar's value against the yen in the wake of the US jobs data. So far this year, it is thought the bank has spent around 90 billion dollars in similar actions. Paul Mackel, currency strategist at Dresdner Kleinwort Wasserstein, said the market is looking at the next important technical level around the 112.70 yen mark. If the dollar breaches that level, then it will have recouped all its losses since September's Group of Seven (G7) meeting in Dubai, which sparked a renewed bout of dollar selling following the call for more flexible exchange rates, said Mackel. Intervention has more than offset the fallout from a disappointing US jobs report for February, which sparked savage dollar selling on Friday. Non-farm payroll figures showed US employment rising by 21,000, well below Wall Street's expectations of a 130,000 increase, prompting a dramatic collapse in the value of the dollar against the euro and sterling. Though the United States emerged from recession more than a year ago, there has been little improvement to date in the labor market. The data suggested that the US economic recovery is not having a material impact on the market, raising expectations that the US Federal Reserve will keep interest rates at 48-year lows. BNP Paribas' Stannard now reckons rates will be on hold until November, against previous expectations of a mid-summer hike by the Fed. Despite its dramatic collapse on Friday -- at one stage the euro surged over two cents to 1.2437 dollars -- the dollar held steady Monday against both the euro and sterling. BNP Paribas' Stannard said the euro is vulnerable to falls given the market is still holding vast amounts of the currency. However, he believes the trend for the euro is still higher given the twin deficits in the US and higher interest rates in the euro zone. The euro was changing hands at 1.2372 dollars from 1.2358 late on Friday in New York, 138.70 yen (138.55), 0.6697 pounds (0.6767) and 1.5814 Swiss francs (1.5791). The dollar stood at 112.09 yen (112.02) and 1.2784 Swiss francs (1.2769). The pound was at 1.8470 dollars (1.8456), 207.06 yen (206.67) and 2.3610 Swiss francs (2.3571). On the London Bullion Market, the price of an ounce of gold stood at 399.85 dollars against 399.25 dollars on Friday afternoon.
The market was absorbing BoJ Yen sales around the 112.00-10 level, and eventually the central bank stopped selling Yen. Once the Yen sales stopped, the market tested below 112.00 and triggered stops from people coat-tailing the BoJ.
The move from 112 down to 111 took place in a blink of an eye though - nothing more than profit-taking?
Ive had my fingers burned a number of times now due to interventions throwing the market in a blink of an eye, as it stands I now limit any trading I do with the Yen.
The yen is quickly becoming a crazy market. One must be quite careful, very deft, seeking only good risk-reward oportunities. But that should be the case with all trades, all markets at all times! As I read this I remembr what a senior trader friend once told me: "Many careers have been made and burnt trading the Yen"
Could BOJ strategy be: temporarily sell down the yen somewhat more than their target, then quickly spike it back so as to leave the speculators in the dust? I know I would be hesitant to go long the yen after seeing it pop a hundred points in a second or so.
In preparation for the next BOJ/MOF intervention, I just ordered a five point harness and a HAHNs device from Jegs.