By: Hillel Fuld
A report stating that the Japanese prime minister and the head of the central bank are going to meeting to discuss ways to better cope with the JPY’s export sapping strength lead to a serious increase of the US Dollar vs the JPY on Friday.
The US currency made its way to to 86.12 JPY, which is an increase of 0.3% from Thursday’s late trading. However, traders are reporting significant resistance ahead of stops at 86.30/50.
The latest increease came after the Asahi Shimbun reported that Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa may meet as early as next week to discuss the JPY’s strength and their potential responses.
A reliable source later confirmed that the government and the BOJ are in fact coordinating to set up such a meeting.
Rumors have been intense regarding authorities finally reacting to the yen given its recent strength and its effect on stocks and exports. The BOJ confirmed it had checked forex rates on Thursday but emphasized it had no specific levels in mind.
In the wake of the JPY’s rise to a 15-year peak versus the USD of 84.72 yen earlier this week on trading platform EBS, market players say the chances of yen-selling intervention at some point cannot be eliminated.
The spotlight now is on what kind of specific actions the government or the BOJ may come up with to curb the yen’s strength.
Judging from what happened in late November to early December, there is a chance that any extra monetary easing steps that the Bank of Japan may be mulling could be announced before the possible meeting between Kan and Shirakawa, said Masafumi Yamamoto, chief FX strategist Japan for Barclays Capital.
"I think there will be a lot of disappointment if any monetary easing steps by the Bank of Japan are viewed as being ineffective," Yamamoto said.
"In that case, authorities may be forced to conduct actual currency intervention," he added.
Possible options for the BOJ may include steps such as trying to grow the amount of banks' current account balances parked at the BOJ, expanding the amount of its fixed-rate fund supply operation or extending the maturity, Yamamoto said.