In an effort to halt yen increases, Japan has begun large scale monetary easing for the first time in six years, drawing staunch objections from prominent U.S. senators.
And Japan may not be finished after their 1
trillion yen sell off, as the country’s finance minister promised “there could
be further action very soon if the yen keeps rising”.
This is just the latest large scale Asian
state move into the currency markets as China and Korea have also dabbled in weakening
their own currency.
Japans action resulted in a 2.5 yen
movement versus the greenback and the nation’s stock exchange index soared
nearly 3 percent to 9,521.
Tony Harris, Senior Vice President of
Equity Trading at Softbank CIBC International says rather than be intimidated
by noises coming from the U.S. government, Japan should escalate their
intervention. “It’s time for them to go in with all they’ve got. If they drip
feed the intervention the effect will be diluted,” he said.
It could be argued that Japans intervention
is targeting a weaker yen; therefore the action they are taking is for the
greater good of the world economy. Switzerland carried out similar intervention
this year to prevent en mass movement of euro zone funds over to the franc.
Mr Harris also noted that the actions,
although drawing scathing remarks from the U.S., will be tolerated now but
Japan may not enjoy this goodwill from major economies in the near future.
“A year down the road some of the big
economic players might start to take action themselves to stem the carefree way
some Asian economies are currently manipulating their own currency’s.”
China and Japans economies are intimately
linked and many economists think a recent Chinese buy up of Japanese debt last
June might be influencing Japans decision to ease the yen.
The move, which injects a significant
amount of liquidity into world finances, will send a ripple effect through the
global economy and could have far reaching consequences.
