The Japanese yen (JPY) has been slowly strengthening, particularly vs. the US dollar as the monetary polcies of the two respective Central banks are seemingly moving in oppostie directions. On the one hand, the rumors are flying that perhaps we are going to see QE3 here in the US as the economy continues to flounder, while the BOJ just announced the other day a paltry increase to their asset purchase program.
The markets have been expecting some type of currency intervention as the BOJ has been known to do that in the past, despite it being largely ineffective. But there is some new blood at the BOJ now who may be trying to buck the conventional wisdom. After all, it has been that conventional wisdom that has kept them mired in the “Lost Decade”– for the past 20 years!
While a strengthening currency can make exports less attractive around the globe, it also means that things abroad will be less expensive. Perhaps this new-found “wealth” effect that the Japanese are seeing will be just what they need to break the cycle of economic futility.
75 is the next level we are watching in USD/JPY and should no intervention materialize (despite the jaw-boning) then maybe Yen can continue to rise at this slow pace. It seems as though the US is following Japan down this road so perhaps folks at the Fed should pay attention!