Federal Reserve 1, Bank of Japan 0

As the world’s currency wars rage on, the Federal Reserve is re-emerging as the “victor.” The dollar index looks ready to erase all its gains for 2010 on the heels of the Fed’s threat to roll out quantitative easing (QE) Part 2. This threat in turn came on the heels of the Bank of Japan’s (BoJ) huge intervention to arrest the yen’s persistent and stubborn increase against almost every major currency on the globe. The relief was only temporary against the U.S. dollar: almost three weeks later, the U.S. dollar has returned to its 15-year lows against the yen.

Score: the Federal Reserve 1, the Bank of Japan 0.


Federal Reserve outflanks the Bank of Japan, wiping out the "gains" from intervention
Source: dailyfx.com charts

The pressure will be felt in Japan to somehow avert further appreciation without igniting more global furor about overtly doing what so many central banks are doing a little less overtly…greasing the skids for currency devaluation (the Swiss National Bank has of course attempted many interventions with no international blustering – perhaps “everyone” expected the interventions to fail jut as they did).

In the meantime, I have had to make adjustments to my own positioning. I had to switch from “hedging” my long USD/JPY with a short EUR/JPY to just going long EUR/JPY. I suspect I will soon need to give up on the long GBP/JPY as the Bank of England is throwing out hints of doing its own additional QE. The yen has remained so strong that even my favorite currency, the Australian dollar, has made very little headway against the yen since the BoJ intervention. As a result I have not profited much from trading in and out of AUD/JPY. (Yes, over the longer-term, I am bearish on the yen).


The yen's gravitational pull is even tugging on the Australian dollar
The yen's gravitational pull is even tugging on the Australian dollar

Source: dailyfx.com charts

Be careful out there!

Full disclosure: long GBP/JPY, USD/JPY, EUR/JPY

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