Thursday, August 4, 2011

The High Cost of Japanese Foreign Exchange Intervention

Japan has likely sold a record 4 trillion yen ($50.6 billion) so far in the currency market in solo intervention that it began on Thursday and continued in overseas markets, the Nikkei newspaper said, reports Reuters.

Tokyo last stepped into the market on its own in September last year, when it spend around 2 trillion yen.

The dollar briefly rose above 80 yen on Tokyo's action in the currency market but has since fallen back to around 79.30 yen.

These interventions don't work unless they are done on a regular, almost daily basis, like China was doing. But the ultimate domestic price inflationary consequences ends the programs because of social unrest of the type developing in parts of China.

1 comment:

  1. Similarily, the Swiss National Bank spent more than 100 billion Swiss francs in spring 2010 to keep EUR/CHF above 1.42 . Currently, the EUR trades at 1.08 CHF. Interventions like this are visible on intraday charts, but seem to barely make a difference in the medium run.