Japan spent about £38bn today, selling yen to weaken its currency (which has gained 41% against the dollar and 47% against the euro since early 2008).
The government is worried that a continuing strong yen would hurt exporters, encourage manufacturers to shift production overseas, hurting jobs, and thus have a triple negative impact on domestic growth — especially within the gloomy global outlook.
The result was a weakening by about 4%-5% against the dollar.
It is thought to be a “single shot” intervention by the Bank of Japan, since currency manipulation is not allowed by G7 rules. But the country’s exporters are likely to take advantage of the opportunity to get 4%-5% more yen for their foreign currency earnings, driving the yen higher again.
This puts more pressure on other currencies, which will no doubt respond.
The partial resolution of the euro crisis last week meant that the market has been more ‘risk on’ and buying euros again. Dollars, seen as a ‘risk off’ purchase, were also being sold, so the yen has risen more against the euro than the dollar.
And US banks have been able to sell bonds for the first time in a while.
Relatively ‘risk-on’ buying has driven prices of copper, Brent crude and other commodities up.
Gold, however, is behaving erratically, sometimes moving as a risk asset, in correlation with the S&P 500 index, and sometimes not — its traditional role as a safe haven.
With Europe still uncertain, the appetite for risk may not last long.
The outlook is still one of volatility. Reduced, perhaps. But complex, interlinked volatility. Different from the past.