Friday, September 19, 2014

Yen and fundamentals

BOJ Governor Haruhiko Kuroda said "What's important is for exchange rates to move in a stable manner reflecting economic fundamentals. That doesn't necessarily mean exchange rates should always stay at the same level. Of course, they could fluctuate reflecting changes in economic fundamentals ... What's undesirable are for exchange rates moving in a way that deviates from economic fundamentals. From this perspective, I don't see any major problem with current moves." 

The usual view of interventionist central banks is that they will intervene if there is excessive volatility or deviations from fundamentals that are detrimental to policy goals. The BOJ is saying that the current yen decline is not a deviation from fundamentals and that the decline has not been excessive. Hold your short yen positions because the central banks thinks you are on the right side of the market.

No comments: