Asian Central Bank Collective Intervention Success Or Failure

Intervention in foreign exchange market restraint

As of 19 August 17th, the US dollar to the yen exchange rate hovered around 76.47, or even lower than the 77.04 of the Japanese central bank's intervention in the foreign exchange market in August 4th, once again approaching a new low of 76.28 during the year.

However, the Bank of Japan is not alone.

In August 16th, the intervention actions taken by the Singapore monetary authority and the South Korean Central Bank to curb the appreciation of their currencies did not achieve the desired results.

As the US sovereign credit rating was lowered by the S & P and the escalation of the European sovereign debt crisis triggered a new round of Asian currency appreciation and risk investment surge, the Asian central bank how to overcome the "market trend" needs great wisdom.

Intervention or a protracted war

Market participants believe that the Bank of Japan intervention

It is no longer a speculator to buy the Japanese yen with the Bank of Japan intervening in the foreign exchange market.

According to the latest data from the US Commodity Futures Trading Commission (CFTC), by the time the Japanese Central Bank intervened in the foreign exchange market, as of August 9th, the yen's net multi head size of foreign exchange speculators dropped to 42149 compared with 58833 last week (12500000 yen to 1).

"However, overseas Asset Management Co participating in yen arbitrage trading have been buying yen and Japanese bonds in a big way."

In the view of hedge fund managers, especially in August 4th, when the Bank of Japan announced the intervention in the foreign exchange market, it announced that it would expand the size of the special fund for the purchase of assets and low interest loans by 10 trillion yen.

In his view, most overseas Asset Management Co believe that the assets purchased by the Bank of Japan will include Japanese government bonds to hedge the amount of 10 trillion yen, which will further push Japan up.

Moreover, in August 1st, Japan's new regulation, which lowered the leverage ratio of foreign exchange margin trading from 50 times to 25 times, also contributed to the rise in the yen exchange rate.

"Since August, investors of Japanese retail investors who have invested hundreds of times in leveraged investments in high interest currencies, Australian dollar and New Zealand dollar have been repatriation funds."

The foreign exchange traders said, "the Japanese yen's repatriation fund is at least hundreds of millions of dollars per day, which allows Japanese retail investors to turn the yen up."

According to a latest report on the direction of investment in Japanese margin retail investors, about 29% of Japanese retail investors expect the dollar / yen exchange rate to fall below 75 this year, while only 22% think the dollar / yen exchange rate will begin to rebound near 76.

In the eyes of the hedge fund managers, after all, the US sovereign credit rating was lowered by the S & P and the escalation of the European sovereign debt crisis, making Japanese bonds and yen a major hedge asset for the world's largest hedge funds.

His hedge fund decided in mid August to increase the proportion of investment in bonds in Japan and other Asian countries from 5% to 15%, and the bond investment limit in Europe and the United States decreased from 30% to 20%. "In August 4th, the Bank of Japan intervened briefly in exchange rate, which is hard to resist the wave of risk aversion."

Kamihara E, a former finance ministry official, said earlier: "the yen may appreciate further, and the US dollar to the yen exchange rate will probably fall below 75.

If the weakness of the US economy persists for some time, Japan must intervene in the long term war of exchange markets, so that the revaluation of the yen will be effective.

Collective "intervention effectiveness" remains to be solved

In addition to the intervention of the Bank of Japan in the "temporary failure" of the exchange rate, other Asian central banks suddenly discovered that this "magic weapon" to curb the appreciation of their currencies is also losing its utility.

In August 16th, the foreign exchange market began to intervene in the Singapore monetary authority after falling to 1.20 in the US dollar against Singapore dollar. At the same time, the ROK began buying US dollars to sell the won when the US dollar / Korean exchange rate was below 1070.

However, the effect of intervention is insignificant - the US dollar has only risen slightly by 0.1% against Singapore dollar as a response to the intervention of Singapore's HKMA, while the US dollar has returned to the downside after a sharp rise of about 1%.

"This is very unexpected."

A Japanese bank foreign exchange trader revealed.

For a long time, global hedge funds investing in Asian currencies will experience a sharp decline in Asian currencies as long as Asian stocks fall sharply, or Asian central banks intervene in foreign exchange markets, causing a sharp depreciation of Asian currency exchange rates. But this year, Asian markets fell and Asian central banks such as Singapore intervened many times.

"The main hedge funds are buying large amounts of Asian bonds."

An Asian hedge fund manager explained.

Deutsche Bank's latest data show that in the first 7 months of this year, foreign purchases of local currency bonds in 5 major Asian markets amounted to about $53 billion, but last year the subscription amount was only about $66 billion.

In the week when the US sovereign credit rating was downgraded by S & P in August 9th, despite the sharp fall in Asian stock markets, the domestic currency bond fund in emerging markets still sucked up about $100 million, becoming the only weekly investment to achieve net capital inflows.

Among them, part of Europe and the United States short-term funds to buy 5 times investment leverage Asian Bond ETF, gamble gambling Asian countries bond investment high yield.

At the same time, large investment banks also quietly "add fuel to the flames".

In August 16th, Standard Chartered Bank said it was reconstructing its medium and long term portfolio and looked ahead to the prospect of Asian currencies outside the yen.

As Asia has a stronger economy, balance of payments and debt fundamentals, Asian currencies other than the yen will become one of the main beneficiaries of the global asset reconfiguration triggered by the downgrade of the US rating.

"Big investment banks are still betting that the Fed will soon launch the third round of quantitative easing monetary policy, which will further boost the appreciation of emerging market currencies such as Asia."

He said, "the impact of the US Federal Reserve QE3 on the depreciation of the US dollar will be much higher than that of the Asian central banks in intervening in the foreign exchange market."

This requires Asian central banks to intervene in the foreign exchange market to succeed.

Shirakawa Gataaki, the governor of the Bank of Japan, pointed out that the trend of the US dollar to yen is highly correlated with the difference between the yield of the 2 - year treasury bonds between the US and Japan. Does this mean that if the yen exchange rate further appreciates, the Bank of Japan will try to push down the yield of the 2 - year treasury bonds in Japan to intervene in the foreign exchange market.

"As Asian currencies become a new haven for global capital, the effect of Asian central banks intervening in the foreign exchange market to prevent the appreciation of their currencies has been greatly reduced."

The Asian hedge fund manager said.