Japanese Yen Braces for Intervention

After months of speculation, it appears that forex markets have finally concluded that the Central Bank of Japan is now prepared to bring down the Yen. On the one hand, the Finance Minister of Japan very publicly denied that the overvalued Yen and the consequent need for forex intervention was discussed during either his personal conversation with US Treasury Secretary Geithner or at the most recent G7 conference. At the same time, he pledged the willingness of Japan to fight “excessive swings” in forex and capital markets. Meanwhile, the expensive Japanese Yen has already trickled down to the economy, driving a 12.7% decline in GDP (in annualized terms) for the most recent quarter. The Yen, accordingly, has begun its retreat, already erasing nearly 10% of the gains it racked up against the Dollar over the last year. Reuters reports:

Japan, like the United States, is in recession and can ill afford a rising currency, which puts an extra choke-hold on exporters that are cutting jobs and shuttering factories in the face of a global slump in demand.

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