Currency intervention schemes do not work. Period.
Ask the Swiss National Bank. Ask the Bank of Japan.
Any temporary results are bottled up to explode later (Switzerland), or simply proceed on their merry way with perhaps a slight delay like we have seen in Japan, Brazil and other places, countless times.
Nonetheless, people propose all sorts of preposterous “mind over market” Forex schemes they believe will work.
Don’t Be Gentle
MarketWatch says Japan Can’t be Gentle with Yen Intervention.
While speaking to a group of journalists, Finance Minister Taro Aso said the dollar-yen trade had become “one-sided.” The utterance of that phrase by certain Japanese officials has often preceded past interventions.
So if the BOJ does decide to intervene by selling yen, how might it go about this sometimes-controversial act?
Ultimately, the goal of any intervention would be to squeeze “the late shorts” out of the market, said Boris Schlossberg, managing director of currency strategy at BK Asset Management.
For any BOJ action to have market traction beyond a short-term response, “they need to beat the market to a pulp and make it concede,” Schlossberg said.
“Make the Market Concede”
Yeah right. After all the shorts are driven out, who is left to buy?
Forcefully driving out shorts (in this case he is referring to those short dollars vs the Yen betting the Yen will rise) does nothing but create a vacuum.
Driving out shorts or longs does not change the fundamentals.
If you want to fix the “problem”, you have to change the fundamentals. Change the fundamentals and sentiment will eventually follow. Attempts to forcibly change sentiment will tend to strengthen it.
The underlying irony in this discussion is the inane belief that a strong currency is a problem.
Mike “Mish” Shedlock
The Dollar collapsed 7% in one day. By any standard the Dollar is an unstable third world currency attended by a deranged, misguided, and corrupt African regime.
Wealth creation can adapt to strong or weak currencies unless government prevents adjustments through minimum wage, tariffs, high taxes, local content laws, artificially high energy costs, preventing hire at will, preventing automated labor substitutions. Obama and Republican establishment are all the above plus affirmative action quota tax, global warming tax, common core, cradle to grave welfare tax, Obamacare tax, …
Adam Price said:
False. The US dollar is the strongest and most stable currency in the world and is used in more than 83% of all global transactions and accounts for more than 63% of all reserves in the global economy. The US dollar has been SOARING UPWARDS and reached 100 on the DXY last year which was up 24% over the past 2 years and it is now around 94.5 on the DXY.
“Change the fundamentals and sentiment will eventually follow.”
This statement has it completely backwards; sentiment drives the markets. Sentiment explains why stocks are priced so much more than the trajectory of the underlying business performance.
Ron J said:
“Currency intervention schemes do not work. Period.”
What intervention scheme of any kind, does work? A boom ends in a bust.
Adam Price said:
FOREX is a wild gambling market on currencies involving more than $5.3 trillion a day in speculative betting.