Sure the euro's gaining ground on the dollar. But not the yen. Has Japan put on the fix?
May 29, 2003: 8:48 AM EDT
By Justin Lahart, CNN/Money Senior Writer
NEW YORK (CNN/Money) - Quick question: The dollar has fallen 10 percent against the euro this year; how far has it fallen against the yen? 5 percent? 10 percent? 15 percent?
Try 'not at all'. Yes, with all of us focused on how the dollar keeps tumbling against Europe's common currency, wringing our hands over whether this is a good or a bad thing, the yen is getting scant notice. In the back of our minds we know that Japan has been fighting hard to keep the yen from strengthening. Same as always.
But the Japanese have rarely been so willing to intervene in the currency market, and they have rarely been so effective at keeping the yen's rate steady against the dollar. In the first three months of this year, the Bank of Japan bought $22 billion in dollars -- a huge amount. Then after an April hiatus it began buying dollars at an even more furious rate. Currency traders speculate that the Bank bought somewhere between $25 billion and $30 billion for yen in May.
Indeed it's beginning to look like Japanese officials are so eager to keep the yen from gaining against the greenback that they have virtually fixed it to the dollar, points out Aeltus strategist Ralph Peters.
The logic behind such a move? First, keeping the yen weak helps keep Japanese products relatively cheap in dollar terms, and this helps Japanese companies stay competitive with their U.S. counterparts around the world.
But more importantly, keeping the yen in line with the dollar helps stem Japan's loss of market share to China. The Chinese currency, the renminbi, is fixed to the dollar, so every time the dollar weakens against the world's other major currencies, it weakens, too.
"Japan cannot allow the dollar to weaken significantly against the yen," wrote Peters recently, "because that means the dollar-pegged Chinese renminbi will also decline against the yen."
Ultimately the sense among currency traders is that Japan's intervention won't work -- in part, because Japan has a long history of ham-handed interventions that came to naught, in part because market forces are supposed to determine a currency's course. But as it tries to beat back the forces of deflation, Japan's willingness to buy dollars has rarely been stronger. And in an age when central bankers are moving toward a mantra of reflation by any means necessary, it's important to remember that the Bank of Japan owns a printing press. The yen could stay steady against the dollar longer than anyone thinks.
For Europe, that is bad news indeed. It means that as the euro gains ground against the dollar, it also gains ground against the yen. And it means that euro strength makes European manufacturers less competitive not just against the United States, but also Japan.
O Clubeinvest.com informa que nenhuma da informação
aqui facultada deverá ser entendida como conselho ou recomendação
de qualquer tipo de transacção ou investimento.
