Japanese Yen Hits 13 Year High Versus Dollar, Treasury to Announce TARP-Funded Auto Bailout on Sunday?

Indeed, the country pledged 4,000 billion yen in spending and tax cuts and 3,000 billion yen in credit for companies, along with an increase in limits for public fund injections for financial institutions to 12,000 billion yen. However, risk aversion was a bigger driver of the move, as Japanese fundamentals rarely play a role in Japanese yen price action, with the biggest issue on the minds of traders being the failure of the US Senate to pass an auto bailout plan overnight. While the White House has suggested that they may step in and use TARP funds in order to salvage the plan, a confirmation by the Treasury will be necessary to revive investor confidence. As we’ve seen in the past, the US government has a long history of making these sorts of announcements on Sunday, so it may be worthwhile to check out the news before forex trading resumes on Sunday afternoon. Other risk-related news includes Ecuador’s default on “illegal” foreign debt and Japan’s announcement of an emergency economic package, as the country pledged 4,000 billion yen in spending and tax cuts and 3,000 billion yen in credit for companies, along with an increase in limits for public fund injections for financial institutions to 12,000 billion yen.

Other news to watch includes the release of the Bank of Japan's Tankan survey on Sunday evening, which is expected to show that confidence amongst Japan's large manufacturers fell by the most since 1975 during Q4, as the index is forecasted to fall to -23 from -3. The outlook amongst manufacturers and non-manufacturers alike is expected to be similarly gloomy, as the combination of waning foreign and domestic demand proves to be toxic for Japanese businesses. Exporters have faced particularly difficult circumstances given the 16% jump in the Japanese yen against the US dollar over the past six months. The appreciation of the Japanese yen has been even more extreme against other currencies over the same time period, as it has rallied 27% versus the euro, 35% against the British pound, 38% versus the New Zealand dollar, and 40% against the Australian dollar. In light of this situation, speculation is mounting that the Bank of Japan will move to intervene in the currency markets in order to stem the Japanese yen's gains. If the results of the Tankan survey prove to be disappointing, the chances of intervention will likely rise.

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