{"id":3188,"date":"2011-03-17T11:11:32","date_gmt":"2011-03-17T11:11:32","guid":{"rendered":"https:\/\/mmm.9dotdigital.ca\/?p=3188"},"modified":"2025-03-27T15:49:13","modified_gmt":"2025-03-27T15:49:13","slug":"is-dollar-yen-heading-for-%c2%a566-6","status":"publish","type":"post","link":"https:\/\/mmm.9dotdigital.ca\/?p=3188","title":{"rendered":"Is dollar-yen heading for \u00a566.6?"},"content":{"rendered":"<p>The suggestion is not entirely frivolous.<\/p>\n<p>The Tohoku Pacific earthquake and tsunami have destroyed supply capacity but will boost demand beyond the short term as a massive reconstruction programme begins. A rise in demand relative to supply implies a fall in Japan&#8217;s saving surplus and upward pressure on real interest rates. Higher real yields, in turn, push the yen higher relative to its long-run equilibrium value. Unless this long-run equilibrium simultaneously falls (e.g. because of a permanent rise in the risk premium investors demand to hold Japanese assets), this suggests a stronger yen.<\/p>\n<p>Higher real interest rates and a stronger currency are the means by which capital is attracted to finance reconstruction. This capital inflow is the counterpart of the fall in the saving (i.e. current account) surplus.<\/p>\n<p>The upward pressure on the yen could be neutralised by a sufficiently large loosening of monetary policy. The Bank of Japan, however, is unable to reduce interest rates (its target for the uncollateralized call rate is 0-0.1%) and has yet to expand QE significantly. (The additional &yen;5 trillion of asset purchases announced this week will be spread over the 14 months to June 2012, implying a monthly rate of less than $5 billion at the current exchange rate.)<\/p>\n<p>The extent of any rise in the yen will depend on the policy response but a target of &yen;67 against the dollar has some &#8220;technical&#8221; attractions:<\/p>\n<ul>\n<li>\n<p>The yen strengthened from &yen;98.6 before the Great Hanshin earthquake of 17 January 1995 to an intraday low of &yen;79.75 on 19 April, a decline of 19.1%. The yen closed at &yen;82.9 on 10 March, the day before the Tohoku Pacific earthquake. A 19.1% fall from this level targets &yen;67.1.<\/p>\n<\/li>\n<li>\n<p>The yen&#8217;s behaviour echoes that of the S&amp;P 500 index in early 2009. The S&amp;P rallied from temporary support at 805 before breaking this level in a final plunge to an intraday low of 666. The yen, similarly, rallied from a low of &yen;80.4 in late October but has now breached this support.<\/p>\n<\/li>\n<li>\n<p>The yen weakened from &yen;102.0 to &yen;123.8 between January 2005 and June 2007, a rise of &yen;21.8. A Fibonacci 2.618 multiple of &yen;21.8 is &yen;57.0. A &yen;57.0 fall from the June 2007 high targets &yen;66.8.\ufeff<\/p>\n<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>The suggestion is not entirely frivolous. The Tohoku Pacific earthquake and tsunami have destroyed supply capacity but will boost demand beyond the short term as a massive reconstruction programme begins. A rise in demand relative to supply implies a fall in Japan&#8217;s saving surplus and upward pressure on real interest rates. Higher real yields, in [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-3188","post","type-post","status-publish","format-standard","hentry","category-money-moves-markets"],"_links":{"self":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/3188","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=3188"}],"version-history":[{"count":1,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/3188\/revisions"}],"predecessor-version":[{"id":5497,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/3188\/revisions\/5497"}],"wp:attachment":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=3188"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=3188"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=3188"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}