Australia Cuts Interest Rates Amid Japanese Intervention

Nov. 1, 2011 - PRLog -- The Japanese government signaled that it is prepared to continuously intervene to ward off speculators from buying the yen after the national currency’s appreciation forced Japanese companies from Panasonic Corp (6752) to Honda Motor co (HMC) to lower their revenue forecasts.

After a massive sale of the yen yesterday which was valued at approximately $50 billion, Japanese Finance Minister Jun Azumi said that he will “continue the intervention until I am satisfied.” The intervention follows another in August, when Japan sold 4.51 trillion yen ($57 billion) in an attempt to stop the currency from appreciating to a post-war high against the dollar. The Japanese press, however, indicated varying figures for the amount of the intervention. In particular, the newspaper Asahi estimated the sale at 10 trillion yen, while the newspaper Yomiuri reported that it was 6 trillion yen. However, unlike their Swiss counterparts, Japanese politicians did not allude to any target level for their currency.

The Japanese government’s measures lent support to Japanese exporters who have perceived a loss of competitiveness over the last two years due to the yen’s 15% growth against the dollar and 21% loss against the Euro. Although monetary policy in Japan is established by the Ministry of Finance, yesterday’s commentary from Bank of Japan Governor Masaaki Shirakawa speaks more of a tactical approach to the yen. At a press conference in Osaka, Shirakawa told journalists that the events that occurred on the market were not very strong in nominal effective terms. According to DT Trading analysts, Shirakawa’s comments hint that new interventions on behalf of foreign currencies may be possible in the future.

In other news from the Pacific region today, the Australian Central Bank lowered the key interest rate for the first time since April 2009. While inflation dropped, even weaker growth in the world economy is threatening a slowdown for the commodity export-based economy. Reserve Bank of Australia Governor Glenn Stevens said that “the latest data suggests that weakened demand and the national currency’s high exchange rate have curbed inflation.” The bank lowered the rate, one of the world’s highest borrowing rates among developed countries, by 25 basis points to 4.5%.

The lowering of the rates, which led to a drop in the national currency and in yields on government bonds, reflects a decrease in the country’s inflation rate to its weakest level in the past 14 years, as the European debt crisis has lowered the forecast for the world economy. Stevens is among twenty or so colleagues from around the world who have made the decision to loosen their country’s monetary policy in order to support domestic demand. Despite the relatively high refinancing rate, DT Trading analysts think that altering the rate by 25 basis points is a much more neutral value and signifies a switch to an adaptive monetary policy and to economic support.

The Australian dollar fell from $1.0530 yesterday in New York to $1.0485 at 3:18PM in Sydney. Yields on 10-year government bonds fell eight basis points from yesterday’s closing, or 0.08%, to 4.43%.

“With overall growth moderate, inflation now likely to be close to target and confidence subdued outside the resources sector, the board concluded that a more neutral stance of monetary policy would now be consistent with achieving sustainable growth and 2 percent to 3 percent inflation over time,” Stevens said.

DT Trading Limited Analytical Department

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