• Home
• About/Contact
• Economic Reports
• Research
• Advertising

• Business
• Economics
• Reports
• Finance
• Marketing
• Politics
• Real Estate
• Services
• Retail
• Tech

Subscribe

The Bank of Japan vs. the World: Japan’s government and the Democratic Congress both want something (or so we’re told)

Forbes begins a piece published just a few hours ago by saying that the Bank of Japan is under quite a bit of pressure - both domestic (political) pressure to keep interest rates steady and outside (foreign, and especially European and US) pressure to raise rates in order to help strengthen the yen. We already know this, so let’s see where Forbes is going…

Forbes then says that although Treasury Secretary Henry Paulson has stated that the yen’s value reflects Japan’s economic fundamentals (a view shared by his ultimate boss, George W. Bush), it’s the Democratic Congress that wants action on the exchange rate, and it wants action through an interest rate hike.

Forbes goes on to say what I’ve been saying all week (though in not as strong terms):

Japan might consider short-term intervention in foreign exchange markets to strengthen the currency. Yet given wide interest-rate differentials between the yen and other currencies, the effect of any such intervention would be short-lived and could trigger wider instability in currency markets.

It would be short-lived if have much of any effect at all. There is no serious technical indication of downward pressure or a downward trend developing. Here we have the daily chart for the USD/JPY (click to enlarge in a new window). I’m not going to claim to be any expert on this, nor should you ever, ever, ever take my advice in any serious way (seriously), but here’s what I see: RSI shows this market is overbought, but has been for some time and continues to uptrend. There is still a strong bit of psychology on the upside. However, it looks like 122 is the limit of the up risk that a lot of traders are willing to take (I’m talking the big, institutional kind). Some people will disagree with me, but I think the recent G7 meeting had some effect on that psychology - there was a bit of a ‘wait and see’ mentality and the rate jerked around (in small increments) based on the latest news reports coming out of Germany. Most traders with long term strategies would be ignoring it, but not all.

Should this market break 122, it could race up - who knows where. Point is, there is no real downtrend on this market yet, it has brely tested its upper resistance levels, and any sort of intervention in the downward direction is likely to meet a lot of resistance from those who are still seeking pushes beyond 122, with the ultimate goal at 125. At some point, someone (I don’t remember who) in the US government mentioned that 125 would be the ‘worry range’ - it seems arbitrary, but the point should be well taken: a lot of forces want it to go up there, and it could scream up from there.

Back to Forbes. They also told us this:

The factors behind [the BOJ] Policy Board’s decision to hold the rate remain unclear. Policy Board members have been equivocal, creating the impression that the BoJ for now has abandoned any commitment to communicate clear intentions to the market.

True, they have been a bit unclear, though there have been a few words given. It seems that they don’t yet know how they’re going to vote. But here’s the rub: the BOJ is being pressured from both sides. Fukui does not want to be seen as giving in to pressure forever. However, I think he would rather give in to domestic pressure than foreign pressure. At least he can then say he’s doing what’s best for Japan (in terms of the domestic economy, not in terms of the nation’s exporters, right?)

At any rate, that’s my call: no rate hike at the February 20-21st Bank of Japan policy board meeting.

Comments

Copyright © 2006-2010 Japan Economy News

Privacy Policy | Disclaimer