Free markets? Unfettered capitalism? Government getting out of the way so that businesses can operate? Not exactly. Try mercantilism, national industrial policy, and monetary protectionism.
Japan's finance minister jolted currency markets early Thursday after he signaled that the Japanese government is prepared to intervene in the foreign exchange to support the dollar and euro and drive the yen lower.
The yen Thursday weakened 1.25 yen to 88.39 yen versus the dollar on the news. The yen also weakened 1.5 yen to 128.70 versus the euro. Both pairings had spiked significantly higher immediately after the finance minister's comments were published.
Finance Minister Shoichi Nakagawa said he has "the means" to limit the yen's advance.
In the modern era, Japan has periodically intervened in the market to drive the yen lower and support the dollar to prevent the yen from becoming too strong versus the dollar, and the world's other major currencies. A strong yen hurts Japan's export sales, including cars, by making those cars too expensive for foreign consumers.
The dollar has fallen more than 21% versus the yen this year -- and about 10% in the last three weeks -- due to more than $1 trillion in mortgage-related losses, a U.S. recession, and U.S. Federal Reserve and U.S. Treasury interventions aimed at jump-starting the U.S. economy.
Currency trader Andrew Resnick, who was stopped-out for losses with dollar-short trades, said the Japanese finance minster's comments were enough to sideline many traders. "So much for free markets," Resnick said. "Seriously, the markets had been anticipating this for some time. Japan is now signaling that the dollar's fall against the yen has limits, it can only go so far. The sense here is that 80 yen is the limit, but Japan may try to defend 85 yen."
Economic Analysis: Some have argued that Japan would let the dollar fall against the yen, and let the market determine the price of Japan's cars exported to the west. Not exactly. If the dollar falls too far, Japan's cars will cost too much, hurting car sales -- a major sector in Japan. Hence, as in previous periods of dollar weakness, Japan will intervene to support the dollar and, by extension, protect their share of the international auto market.
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Reader Comments (Page 1 of 1)
12-18-2008 @ 5:37PM
morton said...
question # 1.
if car company go b.k, all suppliers that are owed money lose. if the big 3 get the dollars, will they pay all the bills they owe
or, the bills that are due, never get paid.
question # 2
fort knox, how much gold is there, in dollars today prices of gold ?
12-19-2008 @ 4:47AM
sharehottips said...
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