bank of japan intervention may 2012

forex trading outlook today - bank of japan intervention may 2012: Rumours have intensified in the currency markets after the euro/yen failed to break below of the 100 level by a sufficient margin. Speculation over central bank intervention was doing the rounds on Friday; it is thought that the Swiss National Bank and the Bank of Japan have intervened in the currency markets in order to halt the appreciation of their respective currencies over the euro.

The Japanese Yen struggled to hold its ground against the U.S. dollar as the Bank of Japan maintained its pledge to pursue ‘powerful monetary easing,’ and the short-term pullback in the USDJPY may turn into a larger correction as it threatens the downward trend carried over from March. Although the BoJ preserved its current policy in May, Governor Masaaki Shirakawa held a highly dovish tone while speaking to parliament and vowed to tackle the risks surrounding the region as it aims to achieve the 1% target for inflation.

At the same time, we saw Mr. Shirakawa attribute the recent appreciation in the low-yielding currency to the shift in risk sentiment as the slowdown in world trade paired with the ongoing turmoil in Europe drags on investor confidence. As positive real interest rates in Japan heightens the appeal of the Yen, we may see the low-yielding currency continue to benefit from the flight to safety, but currency traders may turn increasingly bearish against the JPY as the fundamental outlook for the region deteriorates. Indeed,

Fitch Ratings lowered the regions long-term credit rating to A+ from AA- as the Organization for Economic Cooperation and Development forecasts public sector debt reaching 223% of GDP next year, and the central bank may face increased pressure to intervene in the foreign exchange market as the ongoing strength in the local currency dampens the prospects for an export-led recovery. Japan’s Vice Finance Minister for International Affairs, Takehiko Nakao, who’s also viewed as the top currency official in the region, said that the government should be prepared to act against the Yen amid the excessive movements in the FX market, and we may see greater calls for a currency intervention as policy makers aim to encourage a sustainable recovery

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