Money market

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  • Publicado : 20 de marzo de 2011
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Last Thursday, while helicopters dropping water to cool reactors at the Fukushima nuclear power plant, central banks in theworld final details of a joint action to lower the temperature of another type of heater: the yen.

The concatenation of misfortunes suffered by Japan during the last 10 days (earthquake, tsunami andnuclear threat) had two immediate financial effects: sharp drop in the Tokyo Stock Exchange and sudden appreciation of the JPY. The yen, which took months to recover ground against the dollar, thistrend accelerated after the natural disaster, reaching the highest rate with the greenback since the Second World War.

The finance ministers and heads of central banks of the G-7 (comprising Britain,Canada, France, Germany, Italy, Japan and the United States) decided last Friday to conduct a concerted monetary intervention (selling massive yen in the market) to slow the appreciation of the yenagainst the dollar. The last time the G-7 announced a joint action was more than a decade. Then, in 2000, acted to prevent the collapse of the euro, which had just been released to the money market.The operation of the G-7 proved to be a balm for the currency market. In the session on Friday, the yen experienced the biggest drop against the dollar since 2008. Still, the Japanese currency is still2% above the exchange rate against the dollar was the day before the earthquake.

Before they were backed by other economic powers, Tokyo had already been acting on his own in the foreign exchangemarket. The Japanese Government has seen the hand of large hedge funds behind the rise of the yen. The interpretation made by the market following the natural disaster is that Japan may be forced torepatriate some of their savings in assets denominated in other currencies, mainly U.S. debt to finance spending to be faced in repairing the damage. The practice of carry trade (borrowing in Japan...
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