So the Bank of Japan (BoJ) finally decided enough was enough and bought approximately $ 3 billion versus the Yen. On a long-term basis it is difficult to argue that the BoJ are throwing ‘good money after bad’ as the cross rate moved below ¥83.00 which was clearly absurd on valuation levels. As Simon Denham of Tradefair remarked, “The country’s currency seems to defy logic as, apart from their trade surplus, practically every other serious determining factor for valuation would indicate that the current levels of the Yen are far too high. “The cross rate hit the long-term bear support at ¥82.85/83.00 and someone in the BoJ was clearly looking at the same chart as any forex trader. On the first day of trading after the intervention, the cross bounced around 200 points in early morning trade from ¥82.85 up to a price of ¥85.20”. It has been quite some time since a major central bank has taken on the market, however with the new Japanese Prime Minister Naoto Kan looking for some breathing space on the currency front to enact his fiscal squeeze, the recent events are perhaps understandable. The question we must ask is whether this heralds a more interventionist chapter in world markets. The rather extreme forex spread betting moves over the last decade have caused significant problems. The Euro practically doubled versus the Dollar from 2001 to 2008, with the Yen also appreciating some 30% in the last couple of years. For this reason, the argument about the demise of the Dollar seems somewhat overdone. Global industry is transacting deals almost exclusively in the Dollar. Until another floating currency challenges the Dollar’s dominance – and this includes getting financial futures contracts traded in anything other than the Dollar – its superiority will remain.
Whilst the Dollar bounced sharply versus the Yen, the same cannot be said against the other majors: both the Euro and Pound had strong sessions taking their crosses up to $ 1.30 and $ 1.55 respectively. The moves were slightly odd considering that the more recent US data was better than expected and one could be forgiven for expecting this to lead to some increased buying of the Dollar. It appears that, firstly, too many people got it the ‘wrong way round’ and that, secondly, there was a sense that if the American numbers were good then the European numbers would be better. Of course if you are trading the forex markets then be aware that further intervention is more than possible. There are even rumours of the BoJ getting ready to sell one trillion Yen. A word of warning before you trade though, ensure that spread betting matches your investment objectives, it carries a high level of risk to your capital and you can lose more than your initial investment. Make sure you familiarise yourself with the risks involved. Spread trading carries a high level of risk to your capital. Seek independent advice if necessary.