jpy fundamentals

Japanese Yen Shrugs Off Rate Cut - Intervention Risk?

Friday, 31 October 2008 23:25:29 GMT  |  Terri Belkas, Currency Strategist

Forex carry trades slumped on Friday, as the Japanese yen ultimately ignored the Bank of Japan’s 20bp rate cut as the currency rallied over 2 [percent against the Australian dollar and British pound while rising more than 1 percent versus the Canadian dollar, euro, and New Zealand dollar.

According to comments from BOJ Governor Shirakawa, three dissenters actually wanted a 25bp rate cut while one member of the rate-setting committee wanted to leave rates unchanged. Mr. Shirakawa also said that there has been a clear change in export and production trends due to the Japanese yen’s strength, and that the rate cut was meant to keep conditions “accommodative.” However, if Japan really wants to make an impact and weaken the yen, intervention may be the only option. The government has not done so since 2004, but they have a long history of doing so successfully since they hold the second largest amount of foreign currency reserves in the world (China holds the most). As a result, Japanese yen traders should be alert in coming weeks, as another sharp rally in the currency could persuade Japan to take action.

Check out Daily Fundamentals in its entirety for analysis and outlooks on the US dollar, euro, British pound, Japanese yen, and the commodity dollars.

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