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USDJPY Rallies as G7 Agrees to Coordinated Intervention on Yen's Behalf

USDJPY Rallies as G7 Agrees to Coordinated Intervention on Yen's Behalf

2011-03-18 00:34:00
David Liu, DailyFX Research,

Japanese Finance Minister Noda has confirmed G7 intervention in the Japanese Yen markets after a meteoric strengthening of the Yen in the days following the Sendai Earthquake. Noda confirms the US Federal Reserve, ECB, Bank of England and Bank of Canada to provide liquid intervention policies to counteract the strengthening of the yen, starting at 9AM JST. News of the report had an immediate effect on the forex markets, where the USDJPY strengthened from 79.60 to 80.49. The benchmark Nikkei 225 was up 2.7%.

The recent strengthening of the yen was largely due to repatriation of Japanese Yen, as Japanese investors sold foreign denominated assets for yen to fund the recovery. During this time, the Yen strengthened to its strongest level since post-War levels to USDJPY 77.61. The Bank of Japan and the Finance Ministry have tried to alleviate the surge in demand through JPY 15 trillion in direct injections, and introducing the sale of JPY 10 trillion in reconstruction bonds, although both did not have as great of an effect as the G7 intervention.

The effects of this effort is not clear yet as previous similar interventions towards liquid currencies have not resulted in the expected effect. The continued demand for yen through repatriation and carry trades are expected to continue, further pushing up the yen. From this intervention, carry trades are expected to unwind as investors need to buy yen in order to end their carry trades. Even with intervention, the direction of the Yen in the long term is not clear yet, as the forces of the markets and the forces of the central bank are at continued odds against each other.

USDJPY (15min)

USDJPY_Rallies_as_G7_Agrees_to_Coordinated_Intervention_on_Yen_body_Picture_4.png, USDJPY Rallies as G7 Agrees to Coordinated Intervention on Yen's Behalf

Nikkei 225 (10min)

USDJPY_Rallies_as_G7_Agrees_to_Coordinated_Intervention_on_Yen_body_Picture_3.png, USDJPY Rallies as G7 Agrees to Coordinated Intervention on Yen's Behalf

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