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How Much More for the Yen? by Ashraf Laidi 9/29/2005
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The land of the rising sun may not observe daylight savings time, but the sunset on its currency is largely observed by global currency markets—at least against the high yielding FX such as the USD (10.2% year to date), Aussie (7.2%) and British pound (1.4%). The recurring question in FX markets remains: “How long will the US dollar continue to damage the Japanese currency in the face of the looming end to the Bank of Japan’s 4 ½ year old quantitative easing policy and persistent evidence of economic improvement?
On Thursday, BoJ governor Fukui shed more light on the timing of ending the current policy when he said the Bank "does not entirely dismiss the possibility [that the quantitative easing will end) before fiscal 2006". On Friday, Japan’s manufacturing PMI rose to 54.5 in September, its higher level in 13 months as firms were unable to meet mounting demand. The latest decline in inflation was a minimal y/y 0.1% in August, while average spending rose 3.2% in August and unemployment fell to 4.3% in August.
Through its quantitative easing policy, the Bank of Japan’s aims at targeting the availability of credit as made by the amount of liquidity provided in the monetary system rather than targeting a numerical target rate of interest. Speculation has been highlighted by an emerging dissent within the 9-member BoJ policy board between those who state the central bank must not reduce its 30-35 trillion yen liquidity target for banks until inflation rises above zero, and those who call for a reduction in the target before the quantitative easing policy is completely phased out.
This article contains the following sections:
High-yielding Flows out of Japan
Speculators Show no Mercy
Broader Tankan Improvement Needed
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