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13 Feb 2013
Forex Flash: Yen swings on G7 speculation – maybe more to come! - BTMU
Derek Halpenny, European Head of Global Market Research at the Bank of Tokyo Mitsubishi UFJ notes that the G7 statement released yesterday should serve as a reminder that commenting on foreign exchange rates invariably leads to the very thing the authorities wish to avoid – excessive volatility!
He feels that the now standard opposition to “excessive volatility and disorderly movements in exchange rates” was expressed as usual in the statement but it also included the added commitment that domestic and fiscal policies would be oriented to domestic objectives and “that we will not target exchange rates”. He feels that this essentially served all countries at the table. He writes, “Japan could state they have the green light for pursuing monetary and fiscal policies to tackle deflation but we think far more importantly other countries received reassurances that Japan would not explicitly target the yen in achieving this objective.”
Halpenny feels that this was the key part of the statement and after all, the Fed along with the BOE have been pursuing aggressive monetary easing for domestic purposes that have undermined their currencies, so there is nothing new in re-affirming that. He writes, “What has driven the yen weaker was the mixture of expectations in regard to future monetary policies under new leadership and explicit comments from MOF officials mentioning specific levels and expressing strong views on future yen moves. We should now expect a notable pull back from Tokyo on explicit yen comments.”
He continues to explain that he would also point out that the additional line in the G7 statement could imply opposition to a foreign bond-buying program by the BOJ. It mentions using “domestic instruments” to pursue domestic policies. Halpenny notes that BOJ expectations are the much more important influence for the yen – but he writes, “Once the key BOJ posts are known we may find themselves with market participants lacking a near-term driver for yen selling that may mark a point of further liquidation of yen short positions. Vice Finance Minister Nakao stated today that markets should determine the level of the yen. We still expect the yen to strengthen back below the 90.00 level v the dollar after the BOJ nomination process is complete.”
He feels that the now standard opposition to “excessive volatility and disorderly movements in exchange rates” was expressed as usual in the statement but it also included the added commitment that domestic and fiscal policies would be oriented to domestic objectives and “that we will not target exchange rates”. He feels that this essentially served all countries at the table. He writes, “Japan could state they have the green light for pursuing monetary and fiscal policies to tackle deflation but we think far more importantly other countries received reassurances that Japan would not explicitly target the yen in achieving this objective.”
Halpenny feels that this was the key part of the statement and after all, the Fed along with the BOE have been pursuing aggressive monetary easing for domestic purposes that have undermined their currencies, so there is nothing new in re-affirming that. He writes, “What has driven the yen weaker was the mixture of expectations in regard to future monetary policies under new leadership and explicit comments from MOF officials mentioning specific levels and expressing strong views on future yen moves. We should now expect a notable pull back from Tokyo on explicit yen comments.”
He continues to explain that he would also point out that the additional line in the G7 statement could imply opposition to a foreign bond-buying program by the BOJ. It mentions using “domestic instruments” to pursue domestic policies. Halpenny notes that BOJ expectations are the much more important influence for the yen – but he writes, “Once the key BOJ posts are known we may find themselves with market participants lacking a near-term driver for yen selling that may mark a point of further liquidation of yen short positions. Vice Finance Minister Nakao stated today that markets should determine the level of the yen. We still expect the yen to strengthen back below the 90.00 level v the dollar after the BOJ nomination process is complete.”