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Friday, May 30, 2003

Shooting Blanks in the Air

So the Bank of Japan has been caught in the act: intervening to no effect. Of course so long as the US authorities continue to be 'comfortable' with the fall, there is really little that the central banks can do. Mind you, these dollar denominated assets could be a real investment for the future. I mean printing yen and getting a peice of the US action, that has to be one of the best business deal on offer right now.

The Bank of Japan this week set two apparent records relating to the currency markets, but the impact on its main aim - to weaken the yen - appeared to leave currency strategists and investors less than impressed. On Thursday, weekly custody data released by the US Federal Reserve - seen as a proxy for overseas central bank holdings - showed a sharp increase in US Treasuries owned by overseas institutions to a record monthly total of $35.4bn. For holdings to have risen that much, strategists believe one or more central banks must have been actively intervening. Bank of Japan data released on Friday appeared to confirm suspicions that almost all of the Treasury buying came from Tokyo. The BoJ's figures implied a record Y3,983bn ($33.4bn) was spent by the bank in May to stem the yen's appreciation - a bigger sum than many in the market had estimated.

Some said the BoJ's spending underlined its commitment to stemming the yen's appreciation against the weaker dollar and would serve as a warning to any investor preparing to short the dollar against the yen. Most, however, noted the limited impact of the bank's action. "What this shows is how significant the pressure on the dollar is - spending $30bn plus only moved the yen less than 4 per cent," said Mitul Kotecha, head of FX strategy at Credit Agricole Indosuez. The dollar fell to a two-year low of Y115.1 on May 19 and by the end of this week, had climbed to a month-high of over Y119.
Source: Financial Times

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