And by the end of trading the YEN had reversed its initial weakness and wound up stronger–the 24-hour trading range was 79.20-78.25, with the settlement at 4:00 p.m. CST, 78.37. It seems that the market will not allow the BOJ (Bank of Japan) to do less than the ECB or the FED. BOJ Governor Shirakawa raised the asset purchase program to 80 trillion YEN from 70 trillion and removed its 0.1% bidding floor for Japanese Bonds (JGB). It is now possible that the BANK will go to negative bids on its JGB buying program so the move was aggressive for what has been a very conservative policy-oriented institution. Even Japanese FINANCE MINISTER Jun Azumi said, “The BOJ took more action than we anticipated.” And again although the YEN weakened on the initial news, by day’s end it reversed and closed strong. Mama, don’t let your children grow up to be currency traders.
Posts Tagged ‘NAFTA’
Round and round the EU goes as it searches for a way to resolve its self-made crisis. As predicted, the Germans and French leaked news to the press–via the Guardian–that a deal had been struck, which would provide the EFSF and the ECB with an equivalent of 2 TRILLION Euros for aiding and abetting the bailout and support of the European financial system. The early afternoon news story gave impetus for the equities to RALLY as well as a SELLOFF in the DOLLAR. The precious metals staged a late recovery after a very severe correction in the morning–GOLD was down almost $50 at its lows.
Yes, the ECB raised rates today and Trichet failed to listen to the wisdom offered by NOTES FROM UNDERGROUND. That means I have overestimated the wisdom of Trichet while underestimating the size of his ego. The rate rise to 1.5% was widely anticipated so the EURO was immediately sold but regained some strength after the ECB announced that it was WAVING THE MINIMUM CREDIT RATING FOR PORTUGUESE BONDS USED AS COLLATERAL FOR REPOS. As the ECB raises rates, it allows for weak collateral to be utilized thus allowing for a large liquidity infusion. This is a fine example of Dostoyevsky’s Grand Inquisitor as bread is taken from the people with one hand and returned to them with the other and the people believe it is a miracle. Europe has become a “ball of confusion.” Why raise rates when you are simultaneously lowering credit standards to prevent a sovereign default?
Notes From Underground: Wen to meet Obama Thursday; Zapatero gives the European debt crisis the bootSeptember 22, 2010
As the United Nations convenes for its fall meetings, world leaders gather in New York, which creates the opportunity for traffic jams and face-to-face bilateral meetings for heads of state. Chinese Premier Wen Jiabao will take the time to discuss serious issues with President Obama–and, of course the trade issue will take center stage. Premier Wen will make his case that the Chinese trade surplus is not a question of currency value but rather economic structure. Wen will argue that the huge trade surplus will correct as the structure of China’s economy becomes more domestic demand driven. The Chinese believe that capitalist history is replete with trade surpluses as a part of any capitalist society’s development. The U.S. and Great Britain both ran massive surpluses as their economies transitioned from agrarian-based to industrialized nations.
The political turmoil that has roiled the markets has been resolved and Japanese Prime Minister Naoto Kan handily defeated the old warhorse, Ichiro Ozawa. The DOLLAR/YEN was sold off as the markets were attune to the Kan victory. Ozawa was presumed to lead a battle for Japanese intervention to stem the YEN strength. Now it seems that the markets have been resolved and the present regime will allow the markets to set the YEN rate, which is being interpreted as further YEN appreciation.
The weekend’s financial news is being dominated by the announcement from the People’s Bank of China, who said it will break the dollar peg and give the Reminbi greater flexibility. The PBC said it would allow greater currency flexibility but will not let the currency move more then 0.5 percent per day in keeping its present bands in place–that is, up or down. Directly from the PBC statement:
“With the Balance of Payments[BOP] accountmoving closer to equilibrium,the basis for large-scale appreciation of the RMB exchange rate does not exist … the People’s Bank of Chinahas decided to proceedfurther with reformof the RMB exchange rate regime and to enhance the RMBexchange rate flexibilty.”