Japan may act during U.S. trading hours after its bold move to weaken the yen; Euro gains following release of inflation and employment data

Sept. 15, 2010  |  Written by Jeffrey Winograd

Forex traders are on high alert – In the first such move in over six years, the Japanese government and the Bank of Japan intervened on Wednesday during Japanese and European forex trading hours in a bold attempt to weaken the yen and help the country climb out of its persistent deflation. Several reports strongly suggest that traders should be prepared for a further intervention during U.S. trading hours today. The intervention gave an immediate boost to the share values of some Japanese exporters. No information was offered regarding the amount of money involved in the intervention, with guesstimates ranging from $2 billion (in JPY) to $12 billion (in JPY). Prime Minister Naoto Kan’s intervention decision went against the prevailing view that he was hesitant to take such a step before the USD/JPY pair approached 80 JPY. The intervention was conducted to put a damper on excessive fluctuations in the currency market, said Finance Minister Yoshihiko Noda. Further “decisive steps,” including intervention, are a continuing possibility, he added. There is concern that Japan acted alone, which suggests the intervention will only have a temporary impact. “A coordinated intervention usually is less successful than a coordinated one,” said Nouriel Roubini (aka Dr. Doom), the head of Roubini Global Economics, during a television interview.  At press time (8:46 a.m. in New York), the JPY had lost approximately 3% of its value against the USD.

Euro continues to hold its own – After the release of euro zone inflation and employment data, the euro has gained against the U.S. dollar. Annual inflation in the euro zone was 1.6% in August, down from 1.7% in July, according to the latest figures published by Eurostat, the statistical office of the European Union. Monthly inflation was 0.2% in August. The main components with the highest annual rates were alcohol and tobacco and transport (both 3.3%) and housing (2.6%). The lowest annual rates were in communications (-0.5%), recreation and culture (-0.1%), and clothing (0.2%). The number of persons employed in the euro zone was stable in Q2 compared with the previous quarter, Eurostat reported. In Q1, employment was also stable. Declines in employment were seen in agriculture (-0.9%), manufacturing (-0.5%), construction (-0.3%) and trade, transport & communication services (-0.2%). Employment in financial services and business activities rose by 0.6%, and grew by 0.2% in services such as public administration, health and education. Compared with Q2 in 2009, employment fell by 0.6%. At press time (8:46 a.m. in New York), the euro was trading at $1.2976.