JPY plunges as Moscow G20 is no plaza accord
City Index February 15, 2013 10:41 PM
<p>JPY accelerates its decline after the G20 agrees to leave off Japan’s policy from the official communiqué. The G20 fully realises that the falling yen […]</p>
JPY accelerates its decline after the G20 agrees to leave off Japan’s policy from the official communiqué. The G20 fully realises that the falling yen is an unavoidable consequence of the nation’s push to overcome a decade-long deflationary spiral, a policy which has been condoned by the G7 and G20. Currency traders have no choice but to drive down the yen as result of Tokyo’s push to achieve this challenging goal. After all, Japan’s CPI has been below zero for six out of the last 10 years.
At the end of the day, no four or five sentences issued by the G7 or G20 will undo the sea change in Japan’s monetary policy, which was brought about by electing LDP back to power.
Even the G7 tacitly favours a weak yen as it is part and parcel of stabilising the global economy via Japanese institutional investors chasing yield abroad (in both G7 & G20 markets).
Yen weakness – search for global yields/returns – supports equities in developed & EM markets – good for the global economy
JPY weakness here to stay
The last time the G7 proved to be a game-changer in currencies was at the G7 meeting in Dubai in September 2003, when both Japan and China were targeted for artificially capping their currencies.
After the meeting on September 22 2003, the yen soared, driving down USD/JPY by 13% from September 2003 to December 2004. That happened because USD/JPY was originally as high as 120 (25% weaker than it is today).
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.