The surprise moves by Japan

Japan intervened in the foreign exchange market on Thursday to buy the yen for the first time since 1998, in an attempt to shore up the battered currency after the Bank of Japan stuck with ultra-low interest rates.

The move, which occurred in late Asia hours, saw the dollar plunge more than 2% to around 140.3 yen. There were no subsequent signs of further intervention or help for the BOJ from other central banks and the dollar closed the day down 1.2% at 142.31 yen.

It had earlier traded more than 1% higher on the BOJ's decision to stick to its super-loose policy stance, bucking a global tide of monetary tightening by central banks fighting soaring inflation.

"We have taken decisive action," vice finance minister for international affairs Masato Kanda told reporters, responding in the affirmative when asked if that meant intervention. But currency interventions are rarely successful and I expect Thursday's move will only provide a temporary reprieve for the yen.

Finance Minister Shunichi Suzuki declined to disclose how much authorities had spent buying yen and whether other countries had consented to the move. It is not known whether Washington agreed to Tokyo's intervention.

Certainly, the Bank of Japan's intervention was the trigger for the Usd-Jpy's collapse, but I have strong doubts that it alone was enough to cause the currency pair to lose more than 500 pips. There are two things: either other central banks participated in the purchase of Yen, but even here I have strong doubts, or, the collapse was helped by the exit of big funds from carry trade operations (much more likely).

Looking at Gbp-Usd and Friday's collapse (-3.57%) it is not difficult to see where those funds that exited Usd-Jpy moved a large part of their capital. Their attention shifted to Europe, Pound and Euro (Eur-Usd -1.50% on Friday). Other currencies also had sharp declines against the dollar, such as the Australian dollar (-1.75%) but here, in addition to the strengthening of the US dollar, there was the deep red in which commodities (gold -1,75%) closed and which led to selling on the Australian currency.

Friday's close for other currencies against the US dollar: Usd-Cad +0.76% (although crude oil fell by 4.86%), Usd-Jpy +0.69%, Usd-Chf +0.43%, Nzd-Usd -1.80% (the same applies here as for Aud-Usd with the October Class III Milk contract losing 2.61% on Friday).

In the coming weeks, if no other upheavals happen, we will see a continuation of the decline in Eur-Usd and Gbp-Usd. I personally have been short Eur-Usd for about a couple of weeks and have my target set at 0.92500.