From the NY Times: <Currency market traders were keeping nervous watch for central bank intervention, after Group of 7 finance and monetary officials expressed concern about the recent excessive volatility in the yen’s exchange rates.
“We are concerned about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability,” the G-7 statement said. “We continue to monitor markets closely and cooperate as appropriate.”>
If intervention were carried out, central bankers would likely sell yen for other currencies, driving down the yen and providing support to other currencies.
Although I am bullish on the yen over a long period, it does look as if its rise in value has been to fast for too long, so be prepared for a downturn of some duration.
<Shoichi Nakagawa, the Japanese finance minister, said he was watching the currency market with great interest. His comments were read in the market as a warning of possible intervention in the currency markets. The yen’s appreciation to alarming heights against other key currencies, to the detriment of exporters, who are seeing their international competitiveness eroded as a result. >
If this program is carried out, look for the exchange traded fund, UUP, to rise dramatically. This ETF is long on the U.S. dollar and short on the yen and other developed market currencies. A dramatic fall in the yen plays into this short position.
However, in a late development: French Finance Minister Christine Lagarde said the Group of Seven nations doesn't plan to intervene to sell the yen after warning today against the currency's ``excessive volatility.''
``The yen has over the past 48 hours seen brutal trading that reflects a great volatility that's linked to current market moves,'' Lagarde said in an interview with Bloomberg News in Montpellier, France. ``We wished to support this possible intervention of Japanese authorities knowing this would be about a purely Japanese intervention.''
Asked specifically if the G-7 would intervene to sell the yen, after it rose to its highest in almost 13 years against the dollar, Lagarde said ``no.''
Japan, however, will probably enter the market to keep the rise in check. This may be enough to satisfy the G7 members, and allow them to keep out of the market.
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