Comments on: Why Japan’s FX intervention might actually work

By: DavidMerkel

DavidMerkel — Thu, 16 Sep 2010 20:00:37 +0000

So, gpowell, kind of akin to a “bill pass” by the Fed, where the the effect covers days, not years… but if Japan genuinely begins doing a lot of unsterilized intervention, that would be a significant policy change, which I suspect some other nations would imitate as part of competitive devaluation.

By: ForexLive

ForexLive — Thu, 16 Sep 2010 19:52:30 +0000

At the zero-bound, it doesn’t matter whether it is sterilized or unsterilized…basically pushing on a strong

By: gpowell

gpowell — Wed, 15 Sep 2010 20:31:47 +0000

Okay, I’ve looked into this. This is a very short-term unsterilization. The MOF borrowed the money from the BOJ, intervened, sending 1 trillion yen in extra funds into the money market. The BOJ did not adjust for this in its daily market ops, making it technically unsterilized. But the MOF will have to issue short-term debt in the next few days to pay back the BOJ, which will drain the market of those funds.

So it’s unsterilized, but only for a couple of days. Hard to get too excited about.

By: gpowell

gpowell — Wed, 15 Sep 2010 19:02:05 +0000

I’m a little sceptical that this was “unsterilized”. The MOF usually issues debt to finance interventions. Unless the BOJ directly bought that debt and will hold to it (kind of like QE), this will automatically be sterilized.

By: fresnodan

fresnodan — Wed, 15 Sep 2010 18:08:24 +0000

Its funny how much of this stuff I read, and how if some central bank a does b, c will follow. If it were so easy, why aren’t we all rich???

So, inflation is good? Isn’t it a defacto policy of reducing real income? Sure, Japan gets to sell more stuff to people who apparently can’t afford it (US), while the stuff Japan desperately needs, oil, will defacto be more expensive and ostensibly lower further the Japanese standard of living? Or is oil of such minor consequence to Japan that it doesn’t matter?

By: enormousturnip

enormousturnip — Wed, 15 Sep 2010 16:59:13 +0000

Since the BoJ holds almost half of Japanese debt, is there a cost for these bonds if interest rates go up? In the US, the Fed holds Treasury bonds, but rebates back the interest it receives on them. So there’s no cost to carrying out monetary policy. I assume the BoJ has a similar arrangement?

By: tariqscherer

tariqscherer — Wed, 15 Sep 2010 16:41:59 +0000

The RBA in Australia has an ongoing record of intervention in the FX market, particularly during periods of highly speculative activity (read bureaucratic interpretation of volatile periods). Their argument seems pretty well grounded empirically and over 2008/09 awarded the Australian fed government a nice little dividend of $5bn AUD or thereabouts. (RBA on FX intervention:http://www.rba.gov.au/mkt-o perations/foreign-exchg-mkt.html#six and RBA on own FX management policy: http://www.rba.gov.au/mkt-operations/mgm t-foreign-curr/investment-mandate.html)

Beyond the traditional metric of inflation preservation, i do not see central banks should not be allowed to manage their FX reserves (including their own currency that they hold on reserves for their own financial system) within the FX market as long as a profit motive is the primary guide. To run a standard hedging policy over reserves is just common sense it would seem.

However, I suppose when put in light of the BofJ desired move and actual intervention scope (ie get the printing/wiring press going full steam) it is another story…

Tariq Scherer
http://scherer.dyndns-web.com/

By: seewhydee

seewhydee — Wed, 15 Sep 2010 15:43:49 +0000

> Has a central bank ever intervened successfully in the foreign exchange market when the momentum trade was against it?

Singapore’s MAS fought off a speculative attack in 1985, and both Singapore and Hong Kong intervened successfully during the Asian crisis in 1997-1998.

By: mjturner

mjturner — Wed, 15 Sep 2010 15:35:15 +0000

I saw a good blog post on this – the US prints money as fast as possible, so Japan’s response should be to print money even faster and buy up the US money with its money and then burn the US money.

By: Polycapitalist

Polycapitalist — Wed, 15 Sep 2010 15:24:37 +0000

Higher Japanese debt interest costs are muted as the BOJ holds a lot of Japan’s debt (Krugman: “net debt is about 100 percent of GDP, not 200, because the BOJ holds so much of it”:

http://krugman.blogs.nytimes.com/2010/09 /09/lost-in-translation-2/

I’m curious to see what kind of trade sanction response may come shortly, particularly against China:

http://www.polycapitalist.com/2010/09/ba nk-of-japans-currency-intervention.html

By: Cynic

Cynic — Wed, 15 Sep 2010 15:17:07 +0000

The key, I suspect, will be investor perceptions. When a government sells off its currency but attempts to sterilize it, there are always speculators willing to bet against the success of the move – they know that the tolerance of the government for inflation is finite, and its willingness to hold the line limited.

The clever aspect of Japan’s move is that currency speculator would be dumb to bet against it. In fact, it’s entirely possible that the most dramatic effects will stem from the announcement and implementation of the policy weakening the Yen on world markets in anticipation of the actual sales.

As for inflation? Small risk, small cost. That debt will be even harder to pay off if Japan’s export-based economy stumbles over an expensive currency. It’s already in a bad situation. At least the intervention offers a reasonable way forward, and the chance of a solution; it’s tough to see how inaction will solve the problem.

By: FifthDecade

FifthDecade — Wed, 15 Sep 2010 14:46:36 +0000

Since printing money is pretty much free for central bankers, surely the ONLY costs are the extra interest charges?