"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


Thursday, February 9, 2012

FOMC impact on the Yen

Note the following chart of the Japanese Yen and you can see the points at which the Bank of Japan intervened into the Foreign Exchange markets to knock it down and lower its value for the sake of their export market. One would be hard pressed to find a reason for the Yen to rally when the Japanese economy is so weak and its official interest rate environment is about as low as that of the US.

Still, the Yen has rallied on "Safe Haven" trades. Whenever traders were feeling risk averse, they would buy the Yen on the crosses along with the Dollar and sell everything else. To put a stop to that the Bank of Japan has twice intervened with rather dramatic results. Unfortunately for them, traders have simply used the intervention to come right back in and bid the Yen back higher basically negating the gargantuan effort required to derail it.

Now comes along the FOMC with its ZERO INTEREST RATE POLICY and it has basically the same impact on the Yen as did the BOJ intervention - it moves LOWER. The reason for this is that the liquidity party is a green light for the risk trades (why else would copper be at a nonsensical $4.00 pound?). In that environment, no one wants to buy the Yen so down it goes.

One has to suspect that the FED and the BOJ are closely communicating these days as the impact of monetary policy is working nicely for both of them as neither one particularly wants to see a strong rally in their respective currency.


  1. BOJ - Printing Yen - check
    BOE - Printed up 50B fresh Pounds - check
    EU - The grand prize winner - ECB expanding balance sheet by a whopping $3T Euros, but no - they are not doing QE. LOL
    US - Stealth QE via cheap swap lines
    US - Overt QE in March/April

    The pressure on gold is building up. Specs won't be able to ignore this action. With the ES bumping up at 1350 resistance, one would think if it doesn't continue on it's upward trajectory soon - - that we'll finally see some meaningful rotation into PM's again.

  2. Financial Repression at it's best. Keep pressure on two opposite sides of currency trade debasing both, but not quite enough to allow a pattern. Have the bullion banks continue to beat down the inflationary metals, stoke fears about the eventual meltdown of the Euro so no traders can go in for any lenght of time. I still say current oil bet the best of all. They cannot control the political upheaval occuring. The Arab Spring has evolved into the "mass murder" Winter. Eventually, someone breaks. Tick, Tick, Tick,......Dan, thank you for your continued blog. Here in Maryland, our profligacy continues. Current Gov has turned a $3 Billion dollar budget surplus into a -$2Billion dollar deficit in short order. No we will not open up the Natural Gas fields in Western Maryland!!! But we are going to increase the gas tax another .20 gallon from .38 cents a gallon. We will tax the internet sales .06cents a dollar, and we continue to spend like fools. Soon I am into the hills of Virginia. Good luck Mr. O' Malley.


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