Tuesday, October 25, 2011

Today's Major Market Move: Japanese Yen Strengthens Over 10% vs USD since April

When a ceiling was set on the EURCHF by the Swiss National Bank, the options for "flight-to-safety" currencies was reduced by one. Some of the remaining candidates are the Norwegian Krone, the Japanese Yen and for reasons I haven't yet been able to discern, the Paraguayan Guarani. The list may soon be reduced again as the Yen continues to get stronger. The Japanese currency has strengthened 10% against the USD since April, the most of any currency.

Click here to go to an active version of the table.

USDJPY is now not only at the lowest point of the year, but also at the lowest point in history. The Bank of Japan has intervened twice this year in an attempt to weaken the yen and in light of recent price action one could hold one of two opinions:
A) Optimistic: The Yen would be even stronger were it not for the bold actions taken by the BOJ.
B) Despairing: All of the attempts by the BOJ to game the forex market have been an exercise in futility, and despite their actions the USDJPY has hit an all-time low.

Is Japan going to take a page out of Switzerland's playbook and make an attempt to put a floor on the USDJPY? The BOJ must have severe reservations in taking that step because if they considered the move a slam dunk, they would've done it already. Furthermore, even though the SNB program has been successful to date, there are still questions as to how it will play out in the long run and whether or not the cap will hold through a Lehman-esque type credit event.

Below is a chart of the % moves of the following crosses: USD / Swiss Franc, USD / Norwegian Krone, USD / Yen and USD / Paraguayan Guarani. The CHF / EUR ceiling was announced on Sep 6th.

Click here to go to an active version of the chart.

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