Thursday, August 4, 2011

Japanese Central Bank Throws Away a Billion Dollars Again

This morning when I woke up I checked the financial markets, gold, silver and, of course, the dollar yen rate.

I was somewhat surprised to see the yen at ¥76.9-something to the US dollar. A hour or two later, the yen had dropped to its current ¥78.9 per US dollar. Obviously the Japanese Central Bank intervened and bought a bunch of dollars.

Fools. When will they ever learn? They keep throwing our hard earned tax money down the drain to stop the yen's rise, but it is all in vain as the yen's appreciation continues. 

Market Watch reports:

Japanese Finance Minister Yoshihiko Noda confirmed the government acted alone to curtail the yen’s rise, unlike in March, when local authorities acted in concert with their counterparts from the Group of Seven leading economies to keep the yen 
from appreciating further.

Why do these fools keep doing this? When will they ever learn that these interventions cannot and will not stop any long term trend? The next part of the article is laughable:

Still, many analysts were skeptical that the actions could keep the yen anchored beyond the short term.
“We don’t believe today’s action will explicitly change the trend of the [dollar-yen rate],” economists at The Royal Bank of Scotland wrote in a note to clients.
“As long as concerns for the downside risks in the U.S. economy and expectations for the [Federal Reserve’s] further easing measure persist, it is hard to expect the [dollar’s rate against the yen] to return to high enough levels to alleviate the negative pressure on exporters’ earnings,” they said.
Gee, you think that, after decades of this sort of failed action repeated over and over that these analysts would figure it out? Gee... I guess they really go out on a limb and stick their necks out when they make statements like, "We don't believe today's action will explicity change the trend." 

What!? After decades of this sort of action and the inevitable failures of those actions, why is it  difficult to say straight out that "this Bank of Japan intervention will fail like all the others have before it."

There I said it. Am I an economic hero or what?


Murasaki Shikibu said...

In all seriousness, I'd like to hear your opinion on why the JPY is this strong. At one point it was 163 JPY to 1 euro or so and now it's something like 111 JPY to 1 euro and as usual I don't think there is any real rational explanation to this.

mike in tokyo rogers said...

Hi Murasaki san,

Here's a good explanation. It's madness..

Anonymous said...

I saw this and thought of your blog:

Viewpoint: Yen is heading for a currency collapse

"...I expect an incomplete auction of government bonds, when investors decide not to buy what is being offered, to occur in the near future, and this will be the beginning of an era of hyperinflation...

It is also possible to see a dramatic decline in the yen even without going through the process of an incomplete auction..."

- clark

Andy "In Japan" said...

The Yen appears strong versus the USD, but what is actually going on is that the dollar is falling in value faster than the Yen is falling in value. The weakening of the dollar is causing the trend in the exchange rate.

In other words, the dollar is weak and the Yen is less weak. Any why is that? It's because the counterfeiters at the Federal Reserve are creating more dollars than the counterfeiters at the Bank of Japan.

Based on statistics I have seen, there are about 12% more dollars now than a year ago. It appears as if the Bank of Japan is counterfeiting at a slower rate, about a 5% annual rate. The result being that the exchange rate is changing. It takes fewer Yen to buy a dollar than it used to.

Murasaki Shikibu said...

Mike: Madness would certainly explain a lot of things.

Andy: Then why is the GBP and EURO also getting devalued if it's just the USD getting weaker?

Andy "In Japan" said...

Murasaki san,
Whether or not you compare the Yen to the USD or EUR or GBP, the rate at which the central banks are counterfeiting AND the rate at which the market expects them to counterfeit in the future is what causes the change in exchange rate.

Investors see the horrible situation in Euro land and in Britain and assume that in the future their central banks will counterfeit at a faster rate than the Bank of Japan will counterfeit, and this all gets built into the exchange rate. Thus it takes fewer Yen to buy a Euro or a Pound than it did before.

The assumptions about future counterfeiting are even more important than the revelation of historical counterfeiting when trying to determine what causes exchange rates to change.

Does this make sense? To me, it does but I admit it might be hard to understand.

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