The yen’s big move

Forex observers have been awaiting a big move in the Japanese yen as upside pressure on the unit has been maintained in light of growing volatility in global markets. The slide in equity markets around the world that has robbed overall valuation by some $6 trillion in recent weeks has raised appetite for typical safe haven plays of the yen and the Swiss franc. Japanese officials keep discussing the need and willingness to act. The rising volatility in global markets has, however, been accompanied by diminishing volatility in the Japanese yen with its daily variance becoming ever smaller. That speaks to the ongoing worries over the situation and isn’t something the Bank of Japan on its own can resolve by a wave of intervention. On Friday morning the yen finally broke out of its range springing to a post WWII high at ¥75.94 with no sign of policy response from the Bank.

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Euro – The euro made a beeline for $1.4450 after earlier falling to its lowest in a week on hopes that German opposition to draft proposals for a new borrowing mechanism might be overcome. Regulators in Brussels are moving ahead with draft proposals to build a euro bond issuance warehouse from which euro-area governments can tap capital markets by issuing what would be bonds deemed safer by investors. Investors this week have found confidence a rare commodity with sellers been forced to act against better judgment as the economic picture starts to look less and less convincing. The rebound in the single currency has captured the imagination of the markets at the end of a hairy week. Losses for stocks have built not just because confidence in the health of the global economy has slumped but also on account of the growing perception of intransigence amongst European governments. Only yesterday German Chancellor Merkel said that a euro bond vehicle was not the right solution for Europe’s debt crisis. But the top brass in Brussels seem to be short of an alternative, which is creating fear among investors. As that fear plays out in weaker stocks it’s cheapening the capitalization across the financial system and raising the stakes in the event of what seems like an inevitable collision.

Japanese yen – Overnight, Finance Minister Noda said that he’s planning to creep up in surprise on the yen, catching dealers unaware. He also said that the Japanese would be watching U.S. markets “tonight” in Asia as the crisis in financial markets worsens. It would seem that dealers crept up behind Noda San on Friday instead as the yen’s strengthening came at a curious time. The reprieve for the euro on rumors of the draft proposal for a euro bond warehouse has completely turned around the performance of the equity markets. U.S. stock futures were sharply lower and within half an hour of Wall Street’s opening the global benchmark had turned higher. The reprieve for stocks has not been matched by the same for the yen. What a surprise!

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