Thursday, March 17, 2011

HOT: On Friday, Central Banks Will Intervene in Foreign Exchange Markets

 The G-7 Finance Ministers and Central Bank Governors have just announced they will enter foreign exchange markets on Friday and attempt to drive down the value of the yen. The yen has been increasing in value since the severity of the earthquake, tsunami and nuclear situation has become evident. The climb in the yen has been the result of Japanese selling dollars and other currencies and converting them to yen so that they will have funds to start rebuilding.

Since governments never like any dramatic movements in any markets that are not the result of their own creation, they will begin to create a dramatic movement in the value of the yen, in the opposite direction of current market forces. Since the yen is going up in value, this means central banks will be selling yen. If they don't have any, they will likely develop swap agreements with the central bank of Japan that will result in huge new quantities of yen being supplied to these banks that will then hit the global economy, driving down the value of the yen. Thus, central bankers are likely to create price inflation problems for the Japanese on top of the crises caused by the earthquake, the tsunami and the nuclear situation.

Below is the full statement issued by the G7:
Statement of G-7 Finance Ministers and Central Bank Governors

March 18, 2011

We, the G-7 Finance Ministers and Central Bank Governors, discussed the recent dramatic events in Japan and were briefed by our Japanese colleagues on the current situation and the economic and financial response put in place by the authorities.

We express our solidarity with the Japanese people in these difficult times, our readiness to provide any needed cooperation and our confidence in the resilience of the Japanese economy and financial sector.

In response to recent movements in the exchange rate of the yen associated with the tragic events in Japan, and at the request of the Japanese authorities, the authorities of the United States, the United Kingdom, Canada, and the European Central Bank will join with Japan, on March 18, 2011, in concerted intervention in exchange markets. As we have long stated, excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We will monitor exchange markets closely and will cooperate as appropriate.


  1. I wonder what China is thinking. Oh wait, this is not currency manipulation, it is "concerted intervention." So, China is still a currency manipulator. my bad

  2. We'll see if the new swap agreements are released today at 4:30 pm EDT.