While I moved away from my screens for a few hours, they hit the panic button in Tokyo. Japanese authorities have intervened in forex market to weaken the Yen in order to support their fragile economy. Japanese exporters are having a tough time competing when domestic currency is strong. All previous interventions had a very short staying power. I think this one is pre-emptive. Here is my thinking:
Dollar has been hit across the board in the last 7 - 10 days due to Yellen/Dudley/Tarullo dove trio. These lovebirds have their nest built right above QE3.
Next week we have 3 possible easings, or strong hints of them anyway, by RBA, ECB and FOMC. MOF/BOJ have probably decided to attack tonight in anticipation of JPY strength due to rate cuts and/or further QE by those central banks. They are also probably doing this to send a message to G20, as their meeting is next week as well.
We have a full-fledged war of central banks. Traders' paradise. Let the volatility rein!
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