True or False:
The Bank of Japan is to blame for the volatile swings in that nation's currency.
According to the mainstream experts -- TRUE. This much we know from the very public trial of U.S. Congress versus the Bank Of Japan held in mid-2007. At the time, the Japanese yen was hanging by the very thin thread of an all-time record low against the euro and a 21-year low against the U.S. dollar.
Rumor had it: The uber weak yen was a direct result of an uber strong Yen Carry Trade, whereby investors borrow yen at low interest rates and reinvest them in higher yielding assets in other countries. Conservative estimates at the time revealed yen-related leverage to be around 40 Trillion yen ($331 Billion), larger than Austria's entire economy.
This activity attracted so much attention that, in May 2007, Congress held hearings to determine whether the Bank of Japan had "jawboned the markets in an effort to keep the yen down." (DJ MarketWatch)
The alleged means of manipulation ranged from providing Japanese automakers with a $4000 subsidy for every midsize sedan exported to the U.S, to holding borrowing costs at a historic low, to maintaining sizable U.S. dollar reserves.
(Is the Sun Still Setting On The Yen? Only those who saw the uptrend in the Japanese Yen BEFORE it took off can say where the currency will be headed next. The latest Monthly Futures Junctures has the story in full. Click Here)
While U.S. legislators cross-examined Bank of Japan officials beneath a dangling, buzzing light bulb – a year ago, the November 2007 Monthly Futures Junctures went off the grid and presented a special, three-page segment on the Japanese Yen warning that the currency's downtrend was already nearing its last leg. There, MFJ editor Jeffrey Kennedy presented the following close-up of the Yen and wrote: (Some Elliott Wave labels have been removed for this publication)
"I believe we can now safely identify this year's low as the end of our fourth wave contracting triangle. After examining chart 3, you'll see that advances have developed impulsively and declines have unfolded correctively. The yen is in the early stages of a third-of-a-third wave advance."
NOTE: The November 2007 Monthly Futures Junctures' analysis came before the U.S. Federal Reserve's rate-slashing campaign took off in earnest. By October 31, 2007, the Fed's lending rate stood at 4.5% (down from 5.25%). Meanwhile, the Bank of Japan maintained every "questionable" policy as is: Rates held steady at .5% until a slight reduction (even more accommodative!) to .3% in October 2008.
Point being, the Rate disparity that was supposedly so integral in advancing the Yen Carry Trade stayed the same -- EVEN as the yen began to RISE.
Flash ahead to today. The Japanese Yen stands just below a 13-year high against the U.S. dollar and six-and-a-half year high against the euro. Headlines abound: "Is This The End of The Yen Carry Trade?" "Yen Caught In Carry Trade Turmoil" And -- once again, the Bank of Japan is under scrutiny for manipulating its currency, this time to the upside. (Google Group of Seven summit warns BOJ on excessive yen gains.)
Find out where the Japanese Yen is set to go. The October 2008 Monthly Futures Junctures picks up where the November 2007 publication left off AND reveals whether the rising sun is soon to set on the yen.