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FX Day Trading - 31 October 2011
BoJ intervenes to sell yen
US dollar the main beneficiary
Japan pledges more aid for EFSF
Anyone who doubted the accuracy of modern statistics should have a look at today's news that the world's population has reached 7 billion.
It happened this morning at 02:33 with the birth of Mr and Mrs Johnson's fifth child, Hao Ming Johnson, in Middlesbrough. The name was chosen because Mr Johnson, a statistician himself, realises that every fifth child born is Chinese.
There are roughly 1.34bn of them at the moment, and they are going to have to put their collective hand in their pocket to the tune of between $50bn-$100bn if the Beijing authorities decide to help out with the European Financial Stability Facility (EFSF).
That might sound a lot to the average anti-capitalist demonstrator but it would represent only about 3% of China's current holdings of foreign governments' bonds. China's participation in the rescue process would not meet with universal approval though.
French opposition parties have been calling Nicolas Sarkozy's plaintive TV appeal last Thursday "an admission of weakness" and that help from China would be "dirty money".
Klaus Regling, the EU's mendicant-in-chief, has no such qualms. As head of the EFSF he will take whatever he can get, and has expressed gratitude for Japan's pledge to continue to buy EFSF bonds. Judging by the Bank of Japan's (BoJ) recent action it would suit them, anyway, to have a suitable vehicle in which to park foreign currency.
The BoJ intervened earlier this morning to push the yen lower by selling it. It worked; the yen went down by nearly 5% against the US dollar and by almost that much against the pound. Japan's finance minister, Jun Azumi, said afterwards "we will take bold action against speculative moves in the market" and "I will continue to intervene until I am satisfied."
Azumi San is clearly hoping to emulate the success of the Swiss National Bank (SNB), which announced two months ago that it would do whatever it took to hold the euro/franc exchange rate above 1.20.
It looks as though the threat itself was enough to do the job for the SNB; the FX spread betting market has policed itself and there has been no evidence of intervention. That will not necessarily be the case for the yen, which has three times the daily turnover of the franc and is consequently less tractable.
The BoJ action took the US dollar higher across the board, simply because it is likely that the bulk of the BoJ's buying was in dollar/yen. It was the first real movement since Friday morning and will have Western investors scratching their heads. They will not want to challenge the BoJ's resolve just yet but they will certainly be thinking about how to go about it.
Today's ecostats will not give them much inspiration. UK mortgage approvals will remain weak, rubbing in the 0.2% monthly decline in Hometrack's house price index.
Euroland unemployment is too unfocused to matter and inflation there will be at or close to last month's 3%.
Canadian producer prices are only vaguely interesting and the Chicago purchasing managers' index leaps around all over the place. With the BoJ done and dusted and nothing new to say about the debt crisis, it could all be a bit anticlimactic.
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'Dollar/Yen Spreads Head Higher on Bank of Japan Intervention', Article by Moneycorp, last update: 31-Oct-11
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