Japan Intervenes in the Forex Markets
On the 30 October Japan moved back into the forex market, by spending, some say, close to 7.5 trillion yen, for the first time since August in a bid to try and dampen the strength of the yen and decrease its allure as a safe haven currency.
Japan’s export-led economy has been strugling to recover from the disruption caused by the recent earthquake. Japan’s manufacturers have been crying out for a weaker yen to make their goods more attractive to overseas consumers.
As a result the yen fell as much as 5% against the dollar and then steadied. Many analysts speculated that the Japanese government might follow the Swiss government, but the two policies are different. The Swiss have pledged unlimited support to keep the Swiss franc at certain rate against the euro while the Japanese intervention was more short lived, so what was its purpose?
The Bank of Japan deployed a specific tactic of continuing to buy US dollars throughout the day, so the yen fell significantly and then stabilised. By reducing the yen it meant that its small and medium sized businesses could exchange the money they had earnt from overseas at much higher rate than normal.
Since the end of October the yen has drifted up higher against the dollar and it looks certain to continue to do so as the EU debt crisis lingers and the US economic recovery continues to be weak.
Japan’s GDP contracted at an annualised rate of 1.3% in the second quarter, marking it a third quarterly decline, compared with expectations for a 2.5% contraction. Japan’s first estimate of its third quarter GDP growth is out on November 14 and many analysts are predicting an expansion of 1.5% from the previous quarter – which will be its first growth seen in four quarters.
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