As it was expected and as what has been repeated in the recent reports, it was not accepted for the BOJ to have this current appreciation of the Japanese yen which effects negatively on the Japanese exports competitively and on a greed deal with the G7 which is looking also for restoring the lost confidence in the markets, the intervention came pushing USDJPY above 81.50 from 79.2 initially and it is expected currently to meet resistance at 83.23 then 83.94 and then 84.52 which is the higher band of its side way barrier and it has been reached in the middle of last December which it has taken since the beginning of last November.

We have seen this week panic of selling in the equities markets because of the increased market worries about the radiation situation in Japan driving Nikkei 225 down forcing US equities indexes to pare back 2011 gains with market worries about direct withdrawing of the Asian investments for covering the exacerbated financial positions in Asia and even in the bonds market with worries about Japanese selling of its share of the US treasuries which can effect negatively on the us creditability and force the fed to cover this withdrawing which can trigger further selling of the US treasuries by other countries and so the intervention in the forex market was the best options having a lower cost than enduring further turmoil in the assets markets dampen the business spending which is still required for the recovery after the credit crisis with minimal possible expected criticism even in the case of intervening from the Japanese side  only but it looks from the G7 statement that it is well appreciated currently to approve a weaker yen while the Japanese economy is struggling and cooling down as it also can not hurt the European exports at this point while the exports from Japan getting down severely on the current markets worries about the radiation in Japan which has no clear end until now.

The Japanese yen has got strong demand in the beginning of this week from the investors who are looking for squaring their risky positions in Japan after the Japanese earth quake and this has started from the first minutes of the week as the markets have realized the negative impacts of it on the Japanese economy and so the USD JPY has opened this week at 80.56 after closing at 81.87 and this has been repeated again last Thursday with Nikkei 225 coming down to 8639 coincide with strong liquidation in the favor of the Japanese yen while the Japanese governmental bonds yields are going up back again in the sack of liquidity to press on the USDJPY further to deepen its diving below 80 after breaking 80.27 which was downside limit of the side way which has been taken by the pair recently triggering stop loses orders below 80 reaching 76.39 and what has added to this reversal exchanged impact between Nikkei 225 and the Japanese yen was not only the risk aversion and the increased demand of liquidity from inside of Japan or even the usual transferring by the end of Japanese fiscal year bat the end of this month but also the exports hedge positions against rising of the Japanese yen which always compensate their products loses and cause these sever market reaction which we have seen in the recent days.

The BOJ has started the week providing liquidity 7 trillions yens to the same day operations in the Japanese markets adding about 15 trillions yens or about 183b$ followed by about 98b$ to its buying bonds plans for providing stability to the markets but these 2 tries did not make a even a block in the way of falling of the Japanese stocks especially after with the panic because of the radiation increasing in Tokyo which started last Tuesday which the winds were coming directly from Fukushima to Tokyo which means that there are increased probabilities of injecting bigger amounts of funds for resorting confidence and stability to the markets which can put weights on the Japanese yen as it is not accepted to appreciate further from BOJ while the Japanese exports are struggling the world fear of nuclear radiated products to come out from Japan which can effect negatively on the Japanese exports costs in the coming period.

Kind Regards

FX Market Strategist

Walid Salah El Din

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