Yen Question

[mendicant2]

Hi! I'm new to forex and this forum, and I'm interested in the economic effects of trading currencies.

My question is what Japan's central bank could do to make the Yen appreciate to the dollar? Aside from changing their interest rates, the BOJ could buy back Yen and sell off their official reserves to make the Yen appreciate relative to the dollar and other currencies, correct? I think this happened a while back but the carry effect seems to still be going strong as investors are taking advantage of the low interest rates in Japan.

Thx for your help!

[DrForex]

It is correct.

A question you might want to ask is "why will the BOJ want to see a stronger JPY?"

A weak JPY is in Japan's interest because it makes Japanese exports of physical goods very attractive and keep an economy on the brink to return to the bad days just prodding along.

Another factor here is that the weak JPY as you mentioned makes JPY a perfect candidate to be the funding currency for carry trades. Apart from foreign money then borrowing JPY for formal carry trade consitution (estimated to be 200 BLN USD worth) there is an informal shorting of the JPY in the OTC market of up to 1 Trillion USD some think. (Some think it isn't this much, but it is still a lot.)

But there is a third group, and that is Japanese nationals exporting investment money on which they make nice returns. This is probably much more than the physical goods (commercial transaction make up less than 10% of global forex trasnactions) component. Why will the BOJ want to see the people losing massive money on their "investment exports" by taking steps to inflate the value of the JPY and inflict capital losses on these investments? They have many times said they are happy to leave the market forces to guide the value of the JPY. Clever - they understand the market forces affecting their currency betetr than you and I. After 2 years of massive intervention to weaken the JPY they simple stopped this in March 2004 (or was it 2005)? They held the JPY above 117/116 with this internvention. Then it strengthened to 101/102 after initially plunging straight to 107/108. But eventually it came back all the way to 117+ while they maintained their interest rates at 0%. They understood that the carry trade would keep the JPY under pressure.

Then there is the aspect of global imbalances that they need to work together on with other nations. Global finance is so intertwined these days that if one market gets totally out of whack everything can go sour. Nobody needs this and thus it isn't hard to get people to at elast try to prevent it. This includes the BOJ (and other major central banks and financial ministries)

Since November last year they (BOJ) started to bad-mouth the carry trade ...

However this knowledge will not help you much with shorter term currency trading.

The inter-relatedness of the factors that move currencies in the short, medium, long and very long term make it very complex and anyone that wants to understand this will have his work cut out for him.

It takes time and it takes a sharp mind and a deep understanding to make the right connections. You are certainly not going to move from being a novice to an expert in a few months on your own. Sucking up to an expert may accelerate this process dramatically.

Ignoring all of this for the dreams of getting rich quick on techincal analysis on 15 minute charts ... well those thousands that do it deserve what they get for it.

Managed Forex Accounts

[DrForex]

Originally Posted by samgarmani

A question you might want to ask is "why will the BOJ want to see a stronger JPY?"

LOL What kind of question is that? Of course the BOJ wants to see a stronger JPY, dont we all...

good advice though

You will be amazed.

Generally exporters want a relatively weak currency to be more competitive in global markets.

The BOJ's actions speak very load against wanting a strong currency. During 2003 - 2004 they paid one trillion JPY to keep the Yen weak (by intervening) directly in the market.

I want a weak South African rand as my revenue is mainly in USD.