What the Fed Can Learn from the Bank of Japan (Hint: It's Not "How to Have Large Cojones")
Pay attention, America, this is what happens when you have an impotent central bank who refuses to raise rates and pull in the reigns on sloppy, half-assed economic "recovery". This is exactly where we are headed, especially with an FOMC line-up for 2010 that promises to be chronically dovish and suspiciously absent of a few pairs of giant cojones. Throughout 2009, my consolation in watching FOMC minutes has been that there was at least one giant pair with a vote. Richmond Fed's Jeffrey Lacker is certainly not alone in having a pair but in the end it's the vote that matters. Hell, even Don Kohn shows a level of sense when it comes to the dollar when he isn't being a total sheisty douchebag. But this lineup for 2010 is nothing but trouble.
Maybe Bernanke should put down the Great Depression text book and read up on Japan? WTF, do something.
The Bank of Japan stepped closer to currency intervention on Friday than at any time in the last five years by checking exchange rates with commercial banks as the yen rallied to a 14-year high against the dollar.
Still, market sources said intervention was highly unlikely in the short term and that authorities were instead aiming to temper the sentiment driving the yen higher.
While the central bank made its presence known in the market, Japan's Finance Minister, Hirohisa Fujii, raised the prospect of a Group of Seven joint statement on currencies to cool the yen's rally.
The dollar slumped to a low of 84.82 yen as investors shunned riskier assets after news about Dubai's debt problems, but it pared its losses after Fujii's comments as his rhetoric was sharper than his remarks on Thursday.
G7 countries issued a statement in October 2008 when the yen rallied against other major currencies, so traders and analysts said a joint statement was possible.
But joint intervention was extremely unlikely, they said. Such action might send the wrong signal at a time when the G7 wants to encourage China to let the yuan rise by maintaining flexible currency markets.
Unilateral intervention by Japan was also unlikely because the yen's rise is largely the result of the dollar's broad weakness, and the BOJ would not have enough financial firepower to reverse the dollar's decline.
Unilateral intervention! WTF! It's the dollar, stupid.
What, we've allowed the Bank of Japan to shuffle its feet for this long, why start pressuring them now? Suddenly our problems with the US dollar - a direct symptom of our overall banking contagion, of course - are their problem? Pffft, even I can't get behind that.
Oh nevermind! The NY Fed research folks are totally on this one. Thank goodness, I was worried there for a second that maybe the Fed was completely fucking oblivious. No idea where I'd get an idea like that.