Japan on the attack
After the lowering of interest rates from the Swiss National Bank (SNB) on Wednesday, it was the turn of Japan to try and curb the strength of its currency. In the wake of today's latest BOJ meeting, monetary policy was further expanded via an increase in existing asset purchase programs and lending facilities. Furthermore, in conjunction with the Ministry of Finance, the Bank of Japan sold yen in the market, pushing USD/JPY from 77.00 to above the 79.00 area. Talk is of around JPY 1trln of yen sales, although there is no confirmation of this. Naturally, the key question is how effective both the BoJ and SNB will be in terms of arresting the appreciation of their currencies. In reality, they are fighting some fairly strong forces that are likely to be in place for months, if not years. Furthermore, the fact that the SNB has not come out selling francs is pertinent. After the intervention of 2009-10 which failed to stop the franc's increase, it (given its balance sheet) is less inclined to jump in again. Both Japan and Switzerland are unlikely to achieve long-term success with this week's policy action, Switzerland especially so. |
