Japan’s Finance Minister speaks of unilateral intervention after yen rise

Japan’s finance minister further sharpened his rhetoric on the yen’s steep gains after the Nikkei newspaper reported Japan may consider selling the yen in unilateral intervention if speculators drive up the currency.

Finance Minister Yoshihiko Noda told reporters he would respond appropriately as needed, an expression he has not used so far in his campaign to talk the currency down.

The yen rose to a 15-year high against the dollar and a nine-year peak against the euro on Tuesday amid fears the global economy is slowing, testing Japanese authorities’ resolve to stem the currency’s climb.

The sharp yen rise and declines in the Nikkei stock average have increased the likelihood that the Bank of Japan will further ease its monetary policy before its scheduled rate review next month, sources told Reuters.

"The dollar went to 83 yen, so the chance of intervention has increased, but it would take more than intervention," said Kiichi Murashima, economist at Citigroup Global Markets in Tokyo.

Read the rest of the story: Japan warns on intervention after yen rise.

The Yen and the Carry Trade looking ripe

On Monday it was reported that the Japanese output gap stood at a -6.4%, worse than the preliminary reading of -6.1%. This output gap is designed to measure how much the domestic product deviates from the potential gross domestic product. A negative number suggests that demand is lagging behind supplies, leading to deflationary pressure. Considering the demography of Japan, and much less consumption by an aging population, this should not be a surprise.

Deflationary pressure is a real threat in Japan, and the Japanese Prime Minister and the Minister of Finance have been leaning on the Bank of Japan to do something. Today the BoJ kept the three month rate at 0.1 percent, and increased the short term lending to banks by 20 trillion yen or $220 billion.

Read the rest of the story: Bank of Japan Policies Makes Yen Attractive to the Carry Trade