FX fundamental analysis
Chart 2: The last five months of USD/JPY
Earlier in February an increasingly overt hostility
governor was evident when Shirakawa
appeared
towards the BoJ before
the
Diet, Japan’s parliament. Tere were strident protests from corporate Japan at the surge in the yen. Such great names of Japanese industry as Sony, Sharp and Panasonic were haemorrhaging red ink while South Korea’s Samsung chalked up record profits. Te doubling in the yen-won cross rate since 2007 was not the only factor, but it didn’t help. Shirakawa is unusual among modern central bankers because he does not have either Bernanke’s ideological belief in monetary power or Mario Draghi’s genius for financial manipulation. It is quite possible that, when his term expires in April 2013, he is replaced by a more malleable BoJ governor, most particularly if the successor is a Ministry of Finance (MoF) appointee.
62 FX TRADER MAGAZINE April - June 2012
So even if this latest BoJ move has been only the consequence of growing political pressure on the Japanese central bank and if under the current governor, BoJ may be reluctant to go all the way towards extreme monetary easing, it could be just a question of time before Japan follows Bernanke’s steps in trying hardly to debase its own currency.
Sell-side curiously dismissive of the move
If we think that most of the down travel of USD/JPY aſter breaking ¥100 (since 2008 to 2010) has been characterized from stubborn calls from most banks’ research regarding how the yen should get weaker and USD/ JPY consequently climb magically back towards levels dictated by various proprietary models of PPP usually
pointing well above ¥100, it is kind of ironic what has been happening in the last few weeks.
Mind you. It is not my intention to pick on a
particular financial
institution. Below I will just point out few examples which came up easily enough searching my too crowded mailbox. Overall I could sum up that the approach has been quite similar across all sell-side research: we are not buying the “this time is different” (from the last few times in recent months USD/JPY rallied just few big figures) event… so please just sell this rally (and I mean the rally from 76 to 79 or 80). Nomura, on Feb 14th
, when USD/
JPY was just breaking above 78 on response to BOJ new measures, simply commented: “Currently, USD/JPY has recovered to the 78 range, but with the fiscal year drawing to a close and many uncertainties clouding the outlook, this
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