Japan and the Banks of Europe – An Update
Since to you I realized that I mis-spoke about the time frame for the 500 pip rise of the Euro vs the Yen – it actually took 36 hours, rather than 24. But that is still a very strong and fast move.
Of course, since then the Euro has retreated against the Dollar and the Yen – both – largely on renewed banking fears spawned by continued worries over Ireland and its attempt to reorganize the Anglo-Irish Bank. There are fears that Ireland may not be able to handle this on its own, requiring in turn that the ECB may have to step in with rescue funding – spreading a widening loss across the European Monetary Union. At this point the Euro has dropped over a hundred pips against both the Yen and the US dollar.
Also – there has been a surprising change of heart with the Bank of Japan. After the government intervened to weaken the Yen many folks assumed the the BOJ would act to ’sterilize’ that action by draining the additional Yen out of the Japanese economy.
They have announced that they will not do this – which means that for the first time the BOJ is acting in a manner that says that the now take deflation seriously instead of worrying excessively about inflation. They are leaving the additional Yen out in the economy. Just in case this is really the case I plan to watch the AUD/JPY and the CAD/JPY as possibly good candidates for a bull move.