Premature? Japan's ¥ Intervention Called a "Dud"

The Not-So-Amazing American Job-Killing Machine just keeps rolling along. And, apropos for those who believe that "state deficits don't matter," a major part in September's tally of 95,000 lost jobs was due to layoffs by states struggling to make ends meet with such contributions having added 76,000 to the unemployment rolls. Amazingly, I hear this sort of "state deficits don't matter" rhetoric from many Americans, reflecting their poor grasp of what's going on in their own backyard (for shame). With still-moribund state revenues, I expect this trend to not only continue but accelerate in the near future.

The obvious upshot of this mediocre news emanating Stateside--the latest in a very long line of them--is that further quantitative easing is expected from the Federal Reserve. So the euro is hovering near the $1.40 mark to the alarm of Eurogroup Chairman Jean-Claude Juncker who is trying to talk the currency down (the Eurogroup is composed on Eurozone finance ministers).

Meanwhile, the yen has hit another 15-year high in light of such news. Indeed, financial newswire RTT is already branding Japan's earlier currency intervention officially a "dud":

The dollar touched a new 15-year low against the yen and continued its dramatic decline against the euro on Wednesday, saddled by expectations that Friday's jobs report will push the Federal Reserve into another round of quantitative easing. A key prelude to the government's monthly jobs report showed the private sector unexpectedly shed jobs in September. Automatic Data Processing said private sector employment fell by 39,000 jobs in September following a revised increase of 10,000 jobs in August.

Despite this week's surprise rate cut to zero by the Bank of Japan, the dollar fell further against the yen to hit Y82.70 -- its lowest since 1995. September's intervention by Japanese officials into the currency markets failed to weaken the yen, which many still view as undervalued relative to the narrowed interest rate gap between Japan and other nations.

The dollar extended its 8-month low versus the euro, slipping to $1.3947. The dollar has collapsed since hitting a 4-year high near 1.1805 in June. A downgrade on Irish debt by Fitch ratings agency did nothing to prop up the dollar. The buck hit a new record low of CHF 0.9598 versus the Swiss franc. Positive Canadian economic data drove the dollar within a cent of parity versus the loonie to C$1.006.

The euro becoming impervious to its members' troubles, the Swiss franc making records on a regular basis, the Canadian unit approaching parity once more, and the yen hitting 15-year highs as an everyday matter. It certainly doesn't look very confidence-inspiring for dollar holders.

Still, I think it's premature to say that Japan's intervention was ineffective since the presumption is that the BoJ won't come in again to prop up the dollar if, say, the psychologically important ¥80 handle is threatened. While Japan and the US feature ZIRP in excelsis, years of deflation in the latter mean that it has a better case to have such low interest rates, for the yen's value in real terms is not nearly as bad as it looks in nominal terms.

In the meantime, the honest truth is that we are all interventionists now--and the Americans are the worst of the lot.