Central Banks vs The Market

Yesterday, the Swiss National Bank and the Bank of Japan both engaged in intervention efforts to stem the rise of their currencies. Both the Yen and the Swiss Franc have been acting as safe havens in global markets given the problems facing a global economy that is starting to roll over as the effects of unprecedented government intervention wares off. The verdict has been decidedly poor from the perspective of the central banks, particularly the SNB. Here are the results of the interventions thus far:

You get the idea. Both currencies have been so bid up by the market that these intervention efforts have been futile, doing nothing but losing money and robbing Swiss and Japanese citizens of some purchasing power. The Central Banks aren’t done, with the BOJ signalling this evening that they need help (and rightly so given their efforts thus far).

Japanese Finance Minister Yoshihiko Noda said on Friday that he was communicating with officials in the United States and Europe on Japan’s currency intervention but declined to comment on their response.

With the Bernank not wanting to strengthen the dollar and Trichet feeling the heat in Europe, the BOJ may find itself alone here. It may even face some return fire in this currency war given the aforementioned central bank heads may succumb to market pressures and inflate away in a vain attempt to reflate falling asset prices.


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