Shorting the Yen

Brian Hicks

Updated April 2, 2013

Hopes that the yen might be able to recover against the dollar have dwindled lately, with the currency now expected to see the longest monthly drop in a 12-year period on easing.

According to Bloomberg, the currency continues to drop in comparison to the dollar, falling at the fastest rate in two and a half years in February.

As the yen continues to slide, Governor Haruhiko Kuroda is struggling to figure out ways for the currency to once again gain ground. A policy meeting to discuss stimulus efforts will be held this week starting tomorrow, and it is expected to come to a close on Thursday.<

The Bank of Japan’s goals with the yen have been to meet an inflation rate of 2%. Because of the currency’s slide, however, meeting this goal has been incredibly difficult. Kuroda hopes to make changes that will help the bank reach its inflation goals within a two-year period of time.

Yen NotesWhile the logistical changes expected to be carried out in order to help steady the yen are unclear as of now, Kuroda has vowed to take whatever measures necessary. According to the Financial Times, it’s likely that the measures will include an increase in the bank’s monthly purchases of Rinban, as well as an elimination of the country’s “banknote rule.”

International Currencies

In trying to determine why the yen has been sliding against competitive currencies, it’s important to take a look at the broader picture of international currency at the moment. The United States economy has slowly been gaining ground as of late, which alone has been enough to cause the yen to fall to roughly 94 against the dollar.

Many analysts believe that if a steadying of the currency doesn’t go into effect soon, it could easily slide to 97 or even 100 to the dollar by the end of the year.

Another aspect of the global economy that has had an effect on the yen is the utter lack of stability in the euro zone. The euro has suffered as of late, much due to the situation in Cyprus, in which a recent bailout brought the concept of euro instability back to the world’s attention.

Add to this the fact that Italy still has yet to find its new prime minister, and it stands to reason why the euro is in somewhat of a state of limbo.

Since the bailout in Cyprus, the euro has actually rallied slightly and appears to be gaining more stability than it has seen in recent times. Nevertheless, the concerns over the currency’s stability are top of mind, and these concerns extend to other currencies throughout the world – including the yen.

Hope for the Yen

It’s not all doom and gloom for the yen, however. According to the Wall Street Journal, the currency appears to be rather stable this week as preparations for the BOJ meeting continue to be made. Kuroda’s approach to bringing the currency back to stability has in large part been embraced by traders, as it gained .09% against the U.S. dollar on Monday.

This comes at a time where the dollar has actually fallen slightly, down .2% against the euro. This dip is a result of U.S. manufacturing data, which proved to be less positive than originally expected. Nevertheless, U.S. numbers have been better than average as of late, and the currency is not expected to see a significant drop based solely upon upsets in manufacturing.

While Kuroda is expected to make relatively big changes in order to help support the yen, traders are leery over the concept. A second meeting will be held in April, and many believe Kuroda must reign in his efforts slightly in order to build consensus with the six members that remain from the leadership days of Masaaki Shirakawa

Shirakawa was known for being far more cautious than Kuroda, which means any drastic measures could alienate the remaining members.

Those who have a vested interest in the yen are keeping a close watch on this week’s meeting, debating which easing steps are likely to be taken and how they will be carried out.

Kuroda has a lot of weight sitting on his shoulders, and he must make a decision that will be good for his country without causing too much of a sea change. 


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