Japan Prepared To Sell Yen To Keep Currency Below 14 Year High Against Dollar

The $ PET (Plunge Enforcement Team) will have its work cut out for it tonight and tomorrow, after speculation was rampant that both Japan and Switzerland would intervene in their respective currency markets to halt the dollar's collapse, in essence making Tim Geithner's self-proclaimed job of maintaining a strong dollar that much easier. And even as the Nikkei has terminally decoupled from the US equity market, and is now over 10% down from its 2009 highs, the yen just passed 85, hitting a 14 year high against the dollar and throwing Japan's export economy into a tailspin: that a confirmed deflationary economy is considered a "safe-haven" in today's world should be sufficient to get Keynes boogying to the foxtrot in his grave as his economic gospel falls apart at the seams.

Japan, which previously had said it is not concerned by the yen's onslaught, finally changed its tune and announced it was considering direct intervention, by selling yen in the FX markets. 

Japan’s currency pared some of its earlier gains after Finance Minister Hirohisa Fujii told reporters in Tokyo he will contact authorities in the U.S. and Europe about currencies if necessary. Shizuka Kamei, Japan’s financial services minister, also urged an international response to halt the rise in the country’s currency.

Kamei, speaking in Tokyo today, said he has asked Finance Minister Fujii to seek global cooperation on the yen.

The market showed some respect to a stronger warning from the government today and bought back the dollar,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “The impact of verbal intervention will not last so long unless the government takes actual action.”

Japan hasn’t sold its currency since March 16, 2004, when it traded around 109 per dollar. The Bank of Japan sold 14.8 trillion yen ($172 billion) in the first three months of 2004, after record sales of 20.4 trillion yen in 2003. Japan last bought the currency in 1998, purchasing 3.05 trillion yen as the rate fell as low as 147.66.

The last thing the "invisible bid" needs is to wage a two-front war: one on the equities side courtesy of the excessive leverage dam finally bursting in a country that unlike the US does not share its facility with printing the reserve currency, and two, a dollar reversion trade. The culmination of the two, coupled with a little short covering panic in the dollar market, could present a major mandatory Aspirin consumption day for the fine traders at 33 Liberty tomorrow. We wish them best, as it is about that time in the night when the futures rise by about 25-50 bps for no reason at all. And with US consumers very much in tune with newsflow today, one should not be surprised if retailer expectation for a strong Black Friday are micturated upon as consumers keep an eye out on /ES into the midnight hour, to decide if that 4th plasma is really worth the 29.95% APR.