Tuesday, 14 February 2012

Japan Finally Takes Action - Yen Falls

As mentioned previously on this blog, the strong yen has gotten to the point where the Japan Central Bank has to act.  Repeated earning results from Toyota, Honda, Sony, Panasonic, etc all suffer huge losses, partly due to the strong Yen.  Without an intervention in the currency, they will not be able to compete long term.

Yesterday, the Japan central bank finally showed their first hand, announcing a 10 trillion yen asset purchase increase ($128 billion).  As of today, the USD Yen exchange rate has increased from 77.60 to 78.57.

Can this continue?  Unless the JCB increases its asset purchases by another big purchase like this, or two: No.  $128 billion sounds like a lot but as comparison:
In 2011, the Bank of Japan expanded its balance sheet by 11%. But last year, the U.S. Federal Reserve expanded its own by 19%, the Swiss National Bank’s grew by 33% and the European Central Bank expanded its by 36%, Ruskin said.
That “shows just how tough it is for the BOJ to keep up with the Joneses.”
So unless the JCB is willing to commit to their purchase instead of their typical habit of making one move forward before meekly backing down (see multiple occurrences in 2011 such as the post Tsunami intervention), expect the yen to come back strong.  Unfortunately, Japan really can not afford to back down continuously, an increase from 120 to 78 exchange rate over the last 5 yrs has taken a severe toll on its economy and all the poor earning results from its top corporations are showing it.

No comments:

Post a Comment