Thursday January 22, 2009 - 16:04:40 GMT
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Larry Greenberg - currencythoughts.com
Japanese Officials Increasingly Worried About Yen Strength
Officials from both the Bank of Japan and Ministry of Finance were vocal overnight in warning that rapid moves in the yen are unwelcome and magnifying the recession. To date, the central bank has lowered its overnight money target from peak by just 40 basis points, whereas the Fed, Bank of England, and ECB have cut their benchmarks by 500-525 basis points, 425 basis points, and 225 basis points.
Japanâ€™s policy recourse would be to return to quantitative easing, which can be gauged by the size of bank current account balances. The higher such go, the greater is the level of excess reserves. At the loosest policy stance in 2005, the target for those balances was Y 30-35 trillion, and they averaged Y 32.74 trillion that whole year. In 2008, by comparison, the balances averaged Y 7.79 trillion in the first half and Y 8.13 trillion from the middle of the year through December 19th, when the central bank implemented a second 20-basis point rate cut to 0.1%. Since that rate reduction, the balances have been higher, averaging Y 10.98 trillion. Some of that increase may be related to yearend, although the average level was just Y 7.38 trillion on average from December 20, 2007 - January 22, 2008. In any case, policy remains much tighter than in 2005, even though actual growth and the outlook for economic growth was much better then. Japanese officials have themselves to blame for the appreciating yen, and their G-7 colleagues will not be fully understanding if Japanese officials sell yen in intervention. More on www.currencythoughts.com.
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