In the global race to the bottom there is one clear cut loser: the Japanese. The Yen has continued to surge in recent months as countries fight to bolster their economies through weak currencies. The Japanese intervened in the market last night and send the Yen tumbling against all other currencies. Steve Barrow at Standard Bank notes that this is not a viable strategy, however:
“The history of past interventions is not good. Japan did manage to haul dollar/yen up from these sorts of levels in 1995 but that was with the help of the U.S. — and this seems unlikely right now. Intervention in isolation has tended to be a much more hit and miss affair. The last bout of significant intervention (35 trillion worth) in 2003 and early 2004 barely made dollar/yen budge … The market knows this, and so does the Japanese finance ministry and the Bank of Japan. If similar intervention now could just hold dollar/yen above 80 (yen) it would be a start but … the market soon gets used to intervention. It does not take the market long to realize that the best way to trade dollar/ yen during bouts of intervention is to sell it straight after the Bank has finished intervening.”
The Wall Street Journal also had a nice piece this morning covering the Yen intervention and why it is unlikely to work:
Just another case of government applying a short-term fix to a long-term structural problem….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.