All Trade Ideas and trading scenarios found on FX360.com are hypothetical. FX360.com has not placed these Ideas in a live trading environment. Forex Trading involves high risks, with the potential for substantial losses that exceed your initial deposit and is not suitable for all persons. Past performance is not necessarily indicative of futures results.

Japan's Political Drama May Expedite Intervention in the Yen

Last updated 9/2/2010 3:55 AM ET (GMT -5) 0 Comments - Add your comment

• Share this:

Boris Schlossberg

Director of Currency Research, GFT

Ichiro Ozawa who is mounting a leadership challenge for the ruling Democratic Party of Japan stated last night that the government must stop rapid rises in the yen. However he acknowledged that there was limited scope for BOJ to act alone on the issue and conceded that FX intervention without coordinated action by G-3 may not have much effect. Nevertheless, his comments clearly intended to put further pressure on Mr. Kan to act more forcefully with respect to yen’s relentless rise.

Mr. Ozawa’s challenge of Mr. Kan’s leadership has complicated the political landscape in Japan underscoring the growing conflict between Japan’s ruling authorities.  Mr. Ozawa, who is known as major powerbroker in Japan, has a checkered past including an ongoing investigation into a bribery scandals and a record of impolitic public statements.  Just last week Mr. Ozawa noted that he did not like the British and called Americans simple minded.

Typically political turmoil weakens a country’s currency, but the yen so far has ignored the drama developing in the land of the rising sun, as trading in the pair continues to be guided strictly by US economic news. One possible reason for the apathy in the markets is that Mr. Ozawa enjoys only  a sliver of public support. The latest Kyodo News poll showed that only 15% of the public favors his challenge while fully 70% want Mr. Kan to stay in power.

In the very near term yen’s direction is very likely to be governed by US NFP data due tomorrow. Yesterday’s shockingly weak ADP numbers may be a bad omen for Friday’s release. Although ADP rarely gets the amplitude right, it is usually correct on the direction of the labor numbers, and the fact that this month’s data turned negative bodes badly for the broader NFP report.  If US labor data surprises to the downside revealing  a contraction  in the labor market USD/JPY could break its near term support at 83.50 and challenge the 80.00 figure quite quickly.  With DPJ election set for September 14 ^th such a course of event could push Mr. Kan to act unilaterally and demand a call for physical intervention in the currency market in order to strengthen his position politically in the face of increasing pressure from Mr. Ozawa.

The information, including Commentary and Trade Ideas, provided on FX360.com should not be relied upon as a substitute for extensive independent research which should be performed before making your investment decisions. Global Forex Trading and FX360 .com is merely providing this information for your general information. The information and opinions presented do not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision and should tailor the trade size and leverage of their trading to their personal risk appetite. Any projections or views of the market provided by FX360.com may not prove to be accurate.

The views of the authors and analysts are not necessarily those of Global Forex Trading, its owners, officers, agents or other employees. FX360.com and the currency research team will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained on FX360.com. Global Forex Trading and the currency research team do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.

Loading...

About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.