By luck, it seems that my recent posts on the carry trade and exchange rates were very timely; the Bank of Japan intervened in the foreign exchange market today, trying to slow or stop the yen’s continued rise.
It has been an interesting couple of days here. Yesterday, Prime Minister Naoto Kan won in a landslide victory to remain president of his party, meaning he will continue as Prime Minister, and spare Japan from having its third leader inside of a year. Kan has only been in power for three months, but was challenged by Ichiro Ozawa, a Dick Cheney-esque character nicknamed “the Shadow Shogun” by media, and who was expected to win due to his long years of networking and back-room dealing.
I think the Ozawa camp is out playing golf today.
With the election over, and with a strong vote of confidence from the party (he won with a vote of 721 – 491) Kan and the BOJ jumped into the For/Ex market today selling yen and buying dollars*. Last I saw it had had the effect of raising the dollar by about 2 yen. Not bad, but in reality it merely cancelled the effect of yesterday’s yen movements. (Most people had expected Kan to stay out of the markets, so after the election results were released the yen rose.)
[Edit: I just read that there is no confirmation on what currency the BOJ bought, but it looks like they at least began by buying U.S. dollars.]
It is a valiant move, as Japan needs to protect its exporters, but I wonder if it is not “too little, too late.” The yen is hovering around a 15 year high, and as a Canadian who wires money home, I’d like to see it stay around these levels. Compared to the 126 yen to $1 CAD I was paying a few years back, even the 2-yen movement won’t change my position, which is to keep sending my money back to Canada.
In the end, I think it is people like me that the BOJ needs: retail investors who sell yen to buy some other currency.