Wednesday, September 15, 2010

Japanese Politics, Yen vs. Dollar and the Price of Gold

By Mike in Tokyo Rogers

Today's Bank of Japan (BOJ) intervention into the price of the Japanese yen versus the dollar now explains why Naoto Kan was kept on as president of the DPJ and will continue as Prime Minister of Japan: It was all a back-door deal. Wheeling and dealing as usual.

"Scratch my back and I'll scratch yours."

All this time Kan was reluctant to prop up the yen and then, suddenly, he wins the vote and the next day, his so-called "principles" are out the door and the BOJ jumps into yen intervention head-first for the first time in six-years (after it was proven it didn't work the first time).  Well, at least that explains why he was kept on.

My favorite economic blog in the world, Mish's Global Economic Trend Analysis, has an excellent
analysis on the idiocy of the BOJ intervening in the price of the Japanese Yen versus the US dollar.

Mish cynically writes of the Bank of Japan (BOJ) intervention:

It has been proven time and time again that currency intervention does not work. Yet, somehow it is "good for the government to show its strong stance". (Referring to foolish remarks by investment strategist Takao Hattori at Mitsubishi UFJ bank).

He also adds later in the same article:

If the Yen does drop in a sustained way, it will not be because of the intervention, but rather because the Yen had outrun fundamentals and was simply ready to drop.

Even though Japan had been complaining that a strong yen was hurting their exports, records show that Japan actually had strong exports in July 2010:


"Clearly the U.S. is not going to be too friendly towards it although they may not argue too much about it in that Japan is a big customer for its Treasury securities."

"I'm not sure we are going to see a major weakening of the macro statistics in Japan, but if we do that would obviously help weaken the yen, but exports were quite strong in July both on a nominal and real basis so it's a bit of a quandary for Japan."

"But the biggest problem for Japan is not the U.S. cross rates, it's the Korean won, and the Korean won has just been ridiculously weak. Yet G20 officials have yet to really pressure Korea on this at all, which I think is really to Japan's detriment."

I highly recommend reading Mish's entire blog on the subject as he is a much better expert on this than I, but I want to point out something here that is missed by most people as to what happened to the price of gold, in yen, immediately after this market intervention. And how government intervention - any government intervention - distorts the marketplace and creates problems for investors and business men alike.

Today, Sept 15, 2010, the opening price per gram of gold was ¥3426 per gram. This was before the BOJ intervention in the price of the yen versus the dollar.

This price was realized after strong gold gains in New York overnight where gold closed at $1268.70 on Sept. 14, 2010. This created the gold price of ¥3426 a gram as stated in the previous paragraph. At that time the yen was trading at ¥82.27 per dollar.

Then, at about 10:30 am Tokyo time, the BOJ intervened and the price of the yen dropped from ¥82.27 per dollar to nearly ¥85 per dollar. This caused the Nikkei 225 to soar.

It also caused the price of gold to jump too. 

In just a moment, the day's price of gold went from ¥3426 a gram to ¥3461 a gram... 

Now, most gold owners would celebrate at this information, but a closer look reveals that this is not all that great and that, even the supposed "experts" think that this intervention won't matter as market fundaments are what's driving the price of the yen.

As the NPR reported:

"The effect from Japan's solo intervention won't last very long. We have to see how the U.S. and European monetary authorities would react," said Yuji Kameoka, chief forex strategist at Daiwa Institute.
The intervention came a day after Prime Minister Naoto Kan held onto power after fending off a challenge from veteran lawmaker Ichiro Ozawa for the ruling party presidency. Ozawa had advocated currency intervention, but Kan had until now been reluctant to act.
So now, one again, things make perfect sense. Ozawa was willing to intervene in supporting the yen. Kan wasn't. Ozawa was a big money politician who had a dirty image; Kan wasn't... Ozawa played the sneaky back-door smoke-filled room deals; Kan was supposedly a "new face" and not a part of the "Good Old Boys" ....

But that's all gone now. 

Kan and his people got the votes they wanted by promising to prop up the yen... It's business as usual in Japan, folks.

The politicians in this country and even the Bank of Japan are not concerned about the well-being of the average Japanese person. They will do whatever they can to keep the Ponzi scheme going for as long as they can... The can has been kicked down the road once again....

A few months ago, Kan said he wouldn't prop up the yen because he was worried that, due to debt, Japan would become like Greece... But, here we are.

Thank God that these politicians look out for number one... Thank God they will do whatever it takes to get elected....

The Japanese people be damned.

PS: Normally I would be thrilled with a ¥81 a gram rise in the price of gold... But when it is due to price manipulation of currency... What should anyone be?


Keywords: gold, Ponzi, Ichiro Ozawa, Kan, Mish, Marketing Japan

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