Japan Ramps Up “Verbal Intervention” Chatter

The U.S. Dollar is trading slightly better against theJapanese Yen after Japanese Prime Minister Kan voiced his strong opinion aboutthe recent movement in the Forex markets.

The U.S. Dollar is trading slightly better against theJapanese Yen after Japanese Prime Minister Kan voiced his strong opinion aboutthe recent movement in the Forex markets.

In what amounts to be a form of “verbal intervention”, Kancalled the recent swings in the currency “rough”, and said they “are a littletoo rapid”. These are the strongest comments from the Japanese government whichusually only says it is concerned about the movement in the currency andexcessive volatility. Some traders believe the strong language used by Kan is a scare tacticwhich only represents an attempt to limit gains in the Yen and in no way shouldbe interpreted as a precursor to an actual intervention.

Some traders rushed out to sell the Yen based on thecomments, but the majority of market participants are said to believe that anintervention is unlikely for mostly logistic reasons. The likelihood of anintervention is small because they seldom work and the size needed to actuallyhave an influence on the market would require the cooperation of the U.S.and other key central bank players.

Some Forex traders also believe that the recent rally in theYen has been orderly and based on sound economic reasons. As long as the currencydoesn’t swing violently or is influenced by excessive speculation, the chanceof the Japanese government garnering support from other nations for anintervention remains remote.

The concerns voiced by Japanese officials are not withoutmerit however. Their primary concern at this time is to protect the economy. Byexpressing strong opinions which may weaken the Yen, the government is doingits best to protect Japan’sexport driven economy.

Another reason why an intervention may not work at this timeis because the desire to buy the Yen is being triggered by safe-haven demandbecause of fear that the global economic recovery may be stalling. Declines inthe Euro Zone and U.S.economies could fuel worries that the world’s economy is headed toward a double-diprecession. The action by the Fed earlier in the week has contributed to thisgrowing pessimism. If a slowdown is confirmed, then investors may begin to buythe Yen more aggressively.

Technically, the USD JPY slid to a 15-year low on Wednesdaybefore buyers stepped in to trigger a short-covering rally into the close. Thefollow-through rally overnight helped form a minor bottom at 84.73, but failedto garner enough upside momentum to trigger a clean closing price reversalbottom.

The strong rally and subsequent follow-through, however, hasput the Dollar/Yen in a position to post a weekly closing price reversal. Thekey number to watch is last Friday’s close at 85.48. This price level may actas a pivot today with choppy two-sided trading on both sides of it, but a closeover this level on Friday will be a strong indication that this market isgearing up for a 2 to 3 week retracement.

Trading may get volatile over the next two days because ofthe struggle between fundamental and news driven traders who believe a move bythe Japanese government to weaken the Yen is inevitable. These traders may getsupport from technical traders who believe that the Dollar/Yen is oversold, buttrend traders may prevail if demand for risky assets continues to decline, triggeringan extension of the flight-to-quality break.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More