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JPY plunges as Moscow G20 is no plaza accord

Article By: ,  Financial Analyst
February 15, 2013 5:41 PM

JPY accelerates its decline after the G20 agrees to leave off Japan’s policy from the official communiqué. The G20 fully realises that the falling yen is an unavoidable consequence of the nation’s push to overcome a decade-long deflationary spiral, a policy which has been condoned by the G7 and G20. Currency traders have no choice but to drive down the yen as result of Tokyo’s push to achieve this challenging goal. After all, Japan’s CPI has been below zero for six out of the last 10 years.

At the end of the day, no four or five sentences issued by the G7 or G20 will undo the sea change in Japan’s monetary policy, which was brought about by electing LDP back to power.

Even the G7 tacitly favours a weak yen as it is part and parcel of stabilising the global economy via Japanese institutional investors chasing yield abroad (in both G7 & G20 markets).

Yen weakness – search for global yields/returns – supports equities in developed & EM markets – good for the global economy

JPY weakness here to stay

The last time the G7 proved to be a game-changer in currencies was at the G7 meeting in Dubai in September 2003, when both Japan and China were targeted for artificially capping their currencies.

After the meeting on September 22 2003, the yen soared, driving down USD/JPY by 13% from September 2003 to December 2004. That happened because USD/JPY was originally as high as 120 (25% weaker than it is today).

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