Tokyo moves to weaken yen, following in Zurich’s footsteps

Tokyo has made another major intervention in currency markets, reportedly spending $11bn to weaken the yen, a day after Switzerland’s National Bank cut interest rates to have the same effect on its franc.

Both the yen and Swiss franc have been popular safe havens for investors increasingly nervous about the indebtedness of both the eurozone and the US, printers of the world’s other ‘safe haven’ currencies.

Japan’s tender fell sharply this morning after the Ministry of Finance made its move, coming unexpectedly at the start of a two day policy meeting by the Bank of Japan.

Tokyo has now intervened thrice in currency markets since September.

Finance minister Yoshihiko Noda said he had contacted other countries’ authorities before stepping into markets this time, but authorities were left with little alternative as the yen’s strength threatened Japan’s recovery from a series of disasters this year.

Yesterday, Switzerland’s National Bank used a rate cut of 0.5% to make its currency less attractive to those seeking safety. It was the first time the bank in Zurich had taken such a move since mid-2010.

It also unveiled plans to grow the stock of francs to CHF 50bn, also aiming to put downward pressure on the currency. The franc had jumped 11% versus the euro in a month.

Today could see more heightened activity in the euro as the European Central Bank sets interest rates before holding a press conference on its views this afternoon.

While investors expect it to keep the rate unchanged, they will look for suggestions by ECB president Jean-Claude Trichet of any aggressive measures to address the bloc’s debt crisis, such as resuming secondary market bond purchases.

Also due today is the Bank of England’s interest rate decision, where onlookers also expect no change to the current 0.5% level.

 

 

 

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