Investors trading the Japanese yen on Tuesday got a bad case of whiplash, after a series of statements from top policy makers first appeared to tacitly approve, then criticize, Japan’s quest for a cheaper currency.
The result was a drop in the yen to near a 3 year low in early morning trading in New York, followed by a jump of almost 1% in just under 2 minutes a few hours later.
The conflicting statements came at a tense time in currency markets. Japan and other developed countries have been pouring money into their financial system, pushing down their currencies in the hopes of spurring their economies. Though they have been successful so far, many traders have been anticipating backlash from leaders of other countries that get hurt as their own currencies rise.
Friday, March 1, 2013
Matthew Walter, Ira Iosebashvili
Investors trading the Japanese yen on Tuesday got a bad case of whiplash, after a series of statements from top policy makers first appeared to tacitly approve, then criticize, Japan’s quest for a cheaper currency.
The result was a drop in the yen to near a 3 year low in early morning trading in New York, followed by a jump of almost 1% in just under 2 minutes a few hours later.
The conflicting statements came at a tense time in currency markets. Japan and other developed countries have been pouring money into their financial system, pushing down their currencies in the hopes of spurring their economies. Though they have been successful so far, many traders have been anticipating backlash from leaders of other countries that get hurt as their own currencies rise.
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Mixed Messages Rattle Yen
ReplyDeleteby Matthew Walter and Ira Iosebashvili
http://online.wsj.com/article/SB10001424127887324880504578299493274063564.html
Investors trading the Japanese yen on Tuesday got a bad case of whiplash, after a series of statements from top policy makers first appeared to tacitly approve, then criticize, Japan’s quest for a cheaper currency.
The result was a drop in the yen to near a three-year low in early morning trading in New York, followed by a jump of almost 1% in just under two minutes a few hours later.
The conflicting statements came at a tense time in currency markets. Japan and other developed countries have been pouring money into their financial system, pushing down their currencies in the hopes of spurring their economies. Though they have been successful so far, many traders have been anticipating backlash from leaders of other countries that get hurt as their own currencies rise.
A meeting of the Group of 20 finance ministers later this week is expected to focus on the threat posed by exceptionally loose monetary policy in the developed world, which has sent an avalanche of capital into some emerging markets.
However, early Tuesday the Group of Seven industrialized nations issued a statement that appeared to imply approval of Japan’s efforts to lower the yen.
The statement underscored comments from U.S. Treasury Undersecretary Lael Brainard at a news conference in Washington on Monday. “We support the efforts to reinvigorate growth and to end deflation in Japan,” Mr. Brainard said.
Traders interpreted the comments as an endorsement of the yen’s 20% weakening since late September.
The dollar rose to ¥94.41, close to its highest point since May 2010, on the G-7 statement, up from ¥94.35 late Monday in New York.
But a few hours later, Reuters, citing an unnamed G-7 official, said markets had misinterpreted the statement, which was meant to signal concern about excess moves in the yen.
That sent the yen soaring. The dollar tumbled to as low as ¥92.95.
In the early afternoon, traders’ heads were spinning once again, after a U.K. official told Bloomberg the statements weren’t about an individual currency or country, bumping the yen back down.
“Quite frankly, this is a mess,” said Alan Ruskin, a strategist at Deutsche Bank DBK.XE +0.09% in New York. Still, he said, any gains in the yen are likely to be temporary and the currency should soon resume its downward path.
The dissonance about whether the G-7 approves of Japanese Prime Minister Shinzo Abe’s explicit comments about the economic benefits of a weaker yen—and his public pressuring of the Bank of Japan to step up its bond-buying program—likely presages more vocal concern from members of the broader G-20 when they meet later this week in Moscow.
Representatives from emerging-market economies are expected to voice concerns that bond-buying programs in Japan, the U.S. and U.K. have flooded the world economy with newly printed money, putting upward pressure on currencies in developing markets and making their exports less competitive.
In the original statement, G-7 officials said they affirmed a long-standing commitment to “market-determined exchange rates and to consult closely in regard to foreign-exchange markets.”
The officials also said that fiscal and monetary policies “have been and will remain oriented toward meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates.”
“Everybody’s checking their eyeglasses prescriptions, wondering what they missed in the original G-7 statement,” says Axel Merk, head of $650 million Merk Investments. Mr. Merk adds, though, that he believes the intent of the original statement was “absolutely crystal clear.”