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More on intervention versus manipulation form Kathy Lien -with regards to China:
(From the regular newsletter via www.fx360.com)
FOREX: WHEN IS INTERVENTION NOT MANIPULATION?
Treasury Secretary Geithners testimony on Chinas foreign exchange policy failed to leave a dent on the U.S. dollar. The reason is because as much as he willing to admit that China is artificially weakening its currency, he was reluctant to indicate that China will be labeled a currency manipulator in the Treasurys October report. We have to ask, Mr. Geithner, how is intervention any different from manipulation? Of course we already know the answer and dont ever expect Geithner to say it, which is that intervention is not manipulation when the culprit is China and they have you by the purse strings. Although many U.S. businesses and Americans are suffering from the weakness of the Chinese Yuan and its impact on U.S. jobs, there are also just as many powerful U.S. businesses that do not want the Chinese market closed to them. Geithner pointed this out when he said that U.S. companies fear confronting China. Of course the fears are not misplaced as China has a history of retaliation. It is for these reasons that Geithner simply said China may meet manipulator test at some time but the Treasury currency report is not a very effective tool to get China to revalue. In other words, he believes that branding China as a currency manipulator could trigger more problems than solutions and he is probably right.
The U.S. may not label China as a currency manipulator in October to avoid a direct attack but the G20 could alter their language on exchange rates to express their growing dissatisfaction with the countrys currency policy. In some ways, this could be even more significant because it would represent global opposition against Chinas exchange rate regime and be enough to push them for another revaluation. Juncker from the European Union has already expressed his dissatisfaction with Japans solo intervention and this morning, he said Chinas currency is undervalued and their steps to strengthen the Yuan arent sufficient. As Geithner pointed out, the agenda for the October 9 to 11 G-20 Finance Ministers and Central Bankers meeting in Washington will include discussions about China and the Yuan. Countries around the world are desperate for growth and they will get it where they can and right now they want it from China. Of course, China is very politically savvy and they will probably preempt any serious criticism by strengthening the currency before the G20 meeting, just like they always do.
Kathy on JPY
JPY: CALLS FOR THE BOJ TO DO MORE (EASING)
USDJPY held onto its intervention led gains despite no signs of additional buying from the Bank of Japan last night. Yesterday Asian traders had tried to take the currency pair lower with exporters possibly hedging into the move, but when European and U.S. traders came into the market, they quickly bid USD/JPY up once again. The Japanese government did not make any new comments on intervention but the Ruling Party Panel has called on the Bank of Japan to hold an emergency meeting quickly to take additional steps to ease monetary policy and effectively stimulate the economy. They want the BoJ to increase JGB buying and to expand their fixed rate money market operation. In a separate interview, BoJ Governor Shirakawa admitted that Quantitative Easing had a limited effect on stimulating the economy and boosting prices. For the Yen this means that the Japanese government will continue to practice easy monetary policy to keep the Yen from rising once again. Whether or not that matters to the market remains to be seen. We believe that USD/JPY will hold onto its gains into the new week and maybe even for a few weeks after that. However speculators will probably want test the conviction of the Japanese government. There are also fundamental reasons for why the Yen may rise - exporters may take this opportunity to establish new hedges in USD/JPY while the half year end could lead to repatriation related Yen buying.
