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The Curious Case of 'Mr. Yen' and His Market Power

By    |   Monday, 16 Aug 2010 09:34 AM

When “Mr. Yen” speaks, the market listens.

Who is this guy?

Eisuke Sakakibara influenced the yen’s exchange rate with the dollar through verbal and actual intervention when he was at Japan’s Ministry of Finance in 1997-1999.

He was kind of like E.F. Hutton was to stocks.

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Well, he’s speaking again. What’s he saying now about the yen?

He seemed to indicate that the strength of the yen was due to the recent weakness of the dollar, concerns about the U.S. economy and the slowing GDP of the Japanese economy. I would tend to agree for the most part.

However, I’ll also add to that. The yen has also been rising against other currencies, too. So it’s not just the fall of the dollar that’s crushing the USD/JPY exchange rate right now.

Nonetheless, the yen has recently reached a 15-year high as it climbed 7.9 percent versus the dollar this year. He says that it could reach a high set back in 1995 when it went into the 79s to the dollar. Wow.

The strong yen will eventually have to be dealt with for sure. After all, it’s crushing the earnings of exporters like Toyota, Honda, Canon, etc.

How big of an impact can it have?

Well, the Nikkei 225 Stock Average is at a year-to-date low. Also, Canon mentioned back in April that it loses about 6.8 billion yen for every 1-yen gain in its value versus the dollar. So as you can see, this is no small matter.

In fact, Honda’s CFO chimed in and added that, “If the Japanese economy is forced to create a production structure based on 85 yen to the dollar, it would be disastrous!”

Why?

They wouldn’t earn enough from exports to pay for the commodities that they need from overseas.

So this is a huge deal. But Japan isn’t quick to intervene in is currency.

After all, it hasn’t done this since March 2004 when it sold 14.8 trillion yen (around $172 billion) to stem the rise of the yen when it was at 109 to the dollar. (The previous year they spent 20.4 trillion yen intervening in the yen).

Yet when it was all said and done, at the end of 2004 the yen was at 102.63. (The lower the number the stronger the yen gets to the dollar).

But they’re going to have to do something in order to help these exporters out.

After all, it’s slowing down their entire economy even now. Japan’s Preliminary GDP numbers just came out Sunday and were worse than expected. Even their previous reading was downwardly revised.

This caused their economy to slow enough to allow China to surpass it now. Japan’s GDP output for the second quarter was $1.288 trillion and China’s was $1.337 trillion, for instance.

So obviously something has to be done because as these huge economies slow down (like Japan and the United States), it’s going to continue to drag down the global GDP growth and cause another recession.

This will add the “fuel to the fire” for the defensive currencies like the yen which benefits from “tough times” economically.

I think things are about to get much worse in the near term before they get better.

However, My Money Matrix Insider members should have some of their best trades yet as we capitalize upon the economic turn through our currency trading as this all unfolds.

About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Money Matrix Insider. Discover more by Clicking Here Now.

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SeanHyman
When Mr. Yen speaks, the market listens. Who is this guy? Eisuke Sakakibara influenced the yen s exchange rate with the dollar through verbal and actual intervention when he was at Japan s Ministry of Finance in 1997-1999. He was kind of like E.F. Hutton was to...
sean,hyman,yen,dollar
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2010-34-16
Monday, 16 Aug 2010 09:34 AM
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