It was just last week that we witnessed the Bank of Japan intervene into the Forex markets to derail the Yen's rally back towards the former intervention level. It had completely erased the losses that it suffered after the round of coordinated intervention by the BOJ, the ECB and the Fed back in March of this year. It was evident from their action that the Ministry of Finance was dealing with political pressures from industry leaders whose exports were suffering as a result of the surging yen and were complaining quite vocally about its levels. Out came the intervention gun by the BOJ and down went the Yen.
But look out! The Yen has come back once again and it has only taken it FOUR TRADING SESSIONS to erase all of the losses that the intervention had resulted in. Talk about a gigantic waste of resources by the Central Bank!
The problem is the sheer volumes of liquidity that are tied to carry trades using the Yen as the funding currency. Traders continue to unwind those trades and run from risk with the end result being a repurchasing of the Yen. That buying is overwhelming any efforts by the Japanese monetary authorities to rein in the Yen.
There is now an effort by the SNB (Swiss National Bank) to derail the Swiss Franc, which is also attempting to take the Franc lower as it has been the recipient of huge inflows tied to safe haven flows. I expect that they will meet with the same "success" as has the BOJ.
Based on what I am seeing, the Central Banks have now become victims of their own policies. They created this beast of liquidity in an attempt to preserve the status quo and now that it is surging back towards their own shores, they are powerless to stem its tide.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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