Friday, August 03, 2007

Samurai runs the Yen

Despite Japan's 2.6 percent growth and its trade surplus, the Yen is down 6.4 percent versus the dollar during the past 12 months. By contrast, the Thai baht is up 20 percent; the Philippine peso is up 14 percent; the Indian rupee is up 13.8 percent; and the ringgit is up 5.7 percent.
Isn’t that strange? The common economic sense is that the currency of a country that has a trade surplus should be stronger than those having a deficit – unless it’s artificially kept depressed by its government like China does. Hence the global pressure on china to let Yuan fly loose. In that commotion, not many noticed what Japan has been upto.

William Pesek in his Bloomberg column, has explained it as he sees it.

"Anytime the Yen does rise, Japanese officials begin talking about “unnatural moves'' in markets. Then comes the “watching trends closely'' warning: In other words, “back off'' to anyone tempted to buy the Yen. Having raised verbal intervention to an art form, Japan no longer needs to intervene.

China, of course, does -- as evidenced by its more than $1.3 trillion of currency reserves. The difference is that China makes no bones about its desire for a competitive exchange rate; Japan disingenuously claims it lets market forces set the yen's value. If that's the case, Tokyo should just shut up and prove it. Then, China would have fewer excuses to hold down its own currency."

Dr.Y.V.Reddy can sure take a leaf – my IT portfolio could look a lot better.

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