Democratic Underground - Currency Notes: Bank of Japan back to old tricks

http://www.belfasttelegraph.co.uk/news/business_telegraph/story.jsp?story=501360

ERRATIC intervention tactics from the Bank of Japan (BoJ) appears to have succeeded in stabilising the USD/JPY exchange rate but looks to have merely transferred volatility elsewhere.

After twice stepping aside from its presumed intervention levels last week, the BoJ has been back to its old tricks intervening just above ¥110.

After all, the dollar's broad recovery since February was led by the heavy MoF intervention in USD/JPY from the ¥105.50 lows.

As well as the BoJ intervening in record volumes (already buying this year approximately two-thirds of the total it bought in 2003 as a whole), other Asian central banks have been busily buying dollars on a consistent basis as well in order not to lose competitiveness relative to Japan.

As a result of this persistent pressure not only has the dollar strengthened against other currencies, but commodity prices have also undergone a significant downward correction.

US Treasury bond prices have also been artificially supported by these endeavours.

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The latest rounds of BoJ intervention look to be aimed at shoring up the USD until the end of the Japanese fiscal year on March 31 to help alleviate accounting pressures on Japanese exporters and investors.

However, with the BoJ support operation on such a massive scale only expected to last for another few weeks, the medium-term downtrend for the dollar should eventually reassert.

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It looks as if the Japanese authorities have woken up to the fact that pushing the dollar too high could be just as counter productive as letting it decline.

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The drying up of officially inspired Treasury bond demand could threaten a US bond market collapse, setting off an even more worrying chain of events if US yields were to rise sharply.

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