Competitive Devaluations: Japan Intervenes to Curb Yen gains for the Third Time this year

Japan intervened in the currency market today, to allegedly halt a rising yen. Today’s action is the third intervention this year.

From Bloomberg

The yen dropped by the most in three years against the dollar as Japan stepped into foreign-exchange markets to weaken the currency for the third time this year after its gains to a postwar record threatened exporters.

“I’ve repeatedly said that we’ll take bold action against speculative moves in the market,” Japanese Finance Minister Jun Azumi told reporters today in Tokyo after the government acted unilaterally. “I’ll continue to intervene until I am satisfied.”

The yen weakened against the more than 150 currencies that Bloomberg tracks as Azumi said that he ordered the intervention at 10:25 a.m. local time because “speculative moves” in the currency failed to reflect Japan’s economic fundamentals. Today’s drop reversed this month’s previous gain by the yen against the greenback, which came amid speculation the Federal Reserve may add to stimulus measures as the U.S. economic recovery stagnates.

Statements like this “I’ll continue to intervene until I am satisfied’” might mislead people to think that political authorities really have the power to control the markets.

It is true enough that their actions may have a momentary or short term impact.

That’s the yen headed lower following today’s intervention.

But from a one year perspective, the first two interventions eventually resulted to a HIGHER and NOT a lower yen (blue uptrend)! The initial intervention was in March 18 where the BoJ bought $1 billion and the second was in August 4, both interventions are marked by green ellipse.

Talk about hubris.

Nevertheless, the inflationism or competitive devaluations being undertaken by Japan has hardly been about exports—why prop up exporters when this sector account for only less than 15% of Japan’s GDP?

Instead, like her contemporaries, the devaluation has been meant to prop up Japan’s rapidly decaying debt laden political institutions of the welfare state-banking system-central banking.

Japan’s government has the largest share and has the biggest growth of Japan’s overall debt (McKinsey Quarterly)

And as the great Ludwig von Mises wrote

The devaluation, say its champions, reduces the burden of debts. This is certainly true. It favors debtors at the expense of creditors. In the eyes of those who still have not learned that under modern conditions the creditors must not be identified with the rich not the debtors with the poor, this is beneficial. The actual effect is that the indebted owners of real estate and farm land and the shareholders of indebted corporations reap gains at the expense of the majority of people whose savings are invested in bonds, debentures, savings-bank deposits, and insurance policies.

It is sad know how politicians misrepresent what they stand for and use class warfare or supposed underprivileged sectors to rationalize the imposition of what are truly designed as self preservation measures.

Put another way, the BoJ’s serial devaluations has actually been meant to illicitly transfer the resources of the average Japanese citizens to the political class and her banking system. Incidentally, the latter, like the Euro counterparts, has been under strain.

From Bloomberg (Topix Banks index)

Share prices of Japan's banks have slumped since 2007.

So much for blabbering about public interest. Devaluations are all about political greed.