Regional News
Japan’s government hopes the third time is the charm for its efforts to weaken the yen.
But currency traders already are casting doubts over whether Japan’s intervention in currency markets on Monday will successfully put the brakes on the currency.
Japanese officials have struggled this year to curb a rise in the yen that undermines the country’s economy by making its export sector less competitive overseas.
After Japan’s move Monday, the yen immediately dropped, but some investors were quickly buying, betting on Japan failing. They note that the yen bounced back from this year’s two other interventions, as well as an attempt in September 2010.
Constantine Ponticos, managing director at Pareto, a firm that manages some $40 billion in currencies, said his firm’s Absolute Return fund bought yen following Japan’s intervention. Pareto is a unit of Bank of New York Mellon Corp. He views Japan’s latest dollar-buying as a relatively modest ploy to help Japanese exporters trade their stash of dollars for yen at an attractive price before month-end.
A salesclerk counts Japanese yen bank notes.
“Exporters have been all over the weak yen,” he said. “I expect speculators and other investors” to do the same.
Traders said Tokyo hit the market with its largest single-day round of intervention on Monday. While Finance Minister Jun Azumi wouldn’t comment on the price tag for Monday’s move, traders said Japan likely sold about ¥7 trillion ($92.31 billion), far more than the estimated ¥4.5 trillion sold in the last intervention on Aug. 4.
The intervention initially lifted the U.S. dollar by as much as 5%, to about 79.60, its highest level since the August effort. But the yen quickly recouped some of losses, as Japanese exporters and other investors took advantage of its fall to buy the currency at attractive levels. In late New York trading Monday, the dollar was changing hands at ¥78.17 yen.
Meanwhile, the dollar moved higher against other currencies. The euro was at $1.3859 from $1.4150 late Friday. The euro bought ¥108.34 from ¥107.29. The U.K. pound was at $1.6087 from $1.6126. The dollar was at 0.8769 Swiss franc from 0.8636 franc late Friday.
Hedge funds and individual investors also piled into the yen Monday, traders said, following a flurry of trade recommendations by Wall Street banks like J.P. Morgan Chase & Co. and Credit Suisse Group AG.
“At this point, there is no reason to think that this time is any different from previous unilateral interventions,” said Andrew Cox, a currency analyst at Citigroup Inc. in New York.
In particular, the yen, seen as a haven, could again surge in response to flare-ups in the European debt crisis or if the Federal Reserve eases monetary policy, making dollar-denominated investments less appealing, traders said.
Investors often buy the yen when global financial markets are turbulent. Japan’s large current-account surplus and persistent deflation make the currency a safe place to park funds despite Japan’s own fiscal problems.
While many global financial markets have calmed in recent weeks, “the world is a treacherous place with political uncertainty, economic uncertainty, you name it,” said Richard Franulovich, senior currency strategist at Westpac Banking Corp. in New York. “The world is screaming for safe havens.”
In addition, there is the persistent undercurrent of Japanese corporations buying yen as they repatriate profits or income earned off investments abroad. The Japanese government “is fighting a potentially losing battle,” said Mr. Franulovich.
Monday’s drop in the yen was particularly welcome because it came at the end of the month, when many Japanese exporters need to buy the currency to settle transactions. The intervention quickly gave them a lot more yen for their dollars, sending the greenback as high as ¥79.55, from the record low of ¥75.31 it had hit earlier in the day.
Some are taking the view that Japan’s effort shouldn’t be written off so easily.
Alessandro Balsotti, an analyst at JW Partners, a Milan research and advisory firm for currency hedge funds, said “plenty of people” are buying yen in defiance of the Bank of Japan, but he said he is wary this time.
This trade “did work quite well the last two times, but I don’t trust it this time,” he said.
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By: Andrew Monahan
Source: The Wall Street Journal, November 1, 2011
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