After prolonged time of silence and “comfort”, Japanese officials went on a verbal offensive against strong Yen. Funny, just yesterday in the post After the sell off, I mentioned high probability of that happening. Prime Minister Yukio Hatoyama said on Monday that he was ready to respond swiftly to rises in the yen and that the government should make it clear that it will take appropriate measures to end it. Respond swiftly? They are few weeks or maybe months late for that. Another official, Minister Naoto Kan said the government has agreed to try to stop the yen’s appreciation, although he did not specify what specific steps it would take.

We know what steps can be taken, though. First, talk and threats of intervention should be expected, something we heard from Bank of Canada for some time now. Difference is, that while BoC limited itself to threats, Bank of Japan has been known to do it, intervene in the open markets in order to weaken the Yen. Just like Swiss National Bank has done this year. Many market participants have been surprised by BoJ inaction to date, something that could change now. It doesn’t mean today or tomorrow, although one never knows for sure. The “scare campaign” should last for some time (days, weeks?), before any action is taken. Most likely any new high in the Yen would be a reason to step in.

Unfortunately, as I expressed many times here, we can’t count on central banks doing something or other. This means not getting into JPY crosses only because  a CB said something. We must have other reasons to enter into a trade. However, if going long Yen (selling crosses) one should employ tight stops, especially if approaching new extremes. Should BoJ decide to make good on its threats, this could cause a move 300-400 pips in matter of minutes. Not a good feeling if you are on the wrong side, so one should be cautious.

British Pound is weakening once again, but I managed an OK trade in one of the GBP crosses yesterday. On Sundays I always look for opening gaps, something I covered here many times before. Last night we had very few gaps happening, and even fewer were of the size I want to see before getting in. This left only one candidate for actual trading, GBP-NZD. Position was only partially successful. My objective was a little too ambitious, and market came to just 2 pips under it, at 2.3162. Trade was closed at the end of that hourly candle for 43 pips gain. At least it was a profit, not a loss.

Mike K.