G-20 Green-Lights Another Big Move in the Yen?

Bruce Krasting's picture


The following are the word from the G20 final communiqué that could weigh on the FX markets in coming days:


- We will refrain from competitive devaluation.


- We will not target our exchange rates for competitive purposes.


That sounds pretty impressive, right? No mincing words on the issue of the day.

Well, you have to consider who is doing the talking. Follows is the list of G-20 countries. In my book, Canada and Australia have done a pretty good job of not manipulating their currencies (and they’ve paid a price). The other 18 players at this table are all messing with their currencies. They are doing it with either a) direct FX market intervention or b) through the backdoor, via QE in the domestic bond markets. The finance ministers all signed the communiqué with their fingers crossed behind their backs.


(Note: Add Switzerland and Hong Kong to the list of dirty floaters)





Another point from the G-20:


We will move toward more market-determined exchange rate systems and exchange rate flexibility to reflect underlying fundamentals.


Fundamentals? What the hell does that mean? I would argue that the “fundamentals” for Japan today would justify an FX rate of USDJPY 110. Did the G-20 just give a “green light” to another big move down for the Yen? That’s my read.



Then there is this final bit of G-20 fluff:


"We reiterate that excess volatility of financial flows and disorderly movements in exchange rates have adverse implications for economic and financial stability."



To me, the key word is “disorderly”. Once again, what the hell is meant by disorderly? If the past 4 months of trading in the Yen crosses was not disorderly, then what is disorderly? Do we need to shed 5 big figures a week for the rest of the month before things get disorderly? I read this to mean that unless things get really out of whack in the FX markets the “authorities” are going to let the markets sort things out.


So the G-20 has given the nod to the market players to push the Yen around. This is interesting as the “market players” are absolutely flush with cash.




It’s not just these big names that have gotten rich on the short Yen trade. It’s everybody who trades FX. Everybody loves a winning trade and the market always pushes beyond equilibrium levels.



We shall see over the next few days if the market agrees with this assessment of the G-20’s words. If we do see a big break to the upside for USDJPY and EURJPY, get your seat belts on. The first 10% of the Yen correction was “fun”. The next 10% will not bring the same laughs.




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moneybots's picture

"- We will refrain from competitive devaluation.

  - We will not target our exchange rates for competitive purposes."


Isn't that just a lie?  After all, Bernanke told congress he would not monetize the debt.  Was it Junker that said, when it is serious, you have to lie?  They might as well be Goldman Sachs talking to the muppets.



caShOnlY's picture

Canada Bruce?  hasn't been manipulating their currency?

Check your facts Bruce,  then check their Central Bank Balance sheet - looks a little "expanded" to me.  

Canada's sole existance and wealth is dependent on their exports "States, eh?".   Before you give me "their economy is humming" tell me why a Nation that experienced no "housing and credit bubble" is experiencing one now after the collapse?  Could it be to join the print fest party at a later date?   Canadian personal debt is now a 1.65% at last count and climbing fast.  Compare that to the U.S. high of 1.54% at peak of bubble.


Orly's picture

Let's ask Mark Carney, shall we? UK will be Canadia on steroids.


just print more money's picture

Nice use of the word "Canard"

From the French for duck,quack quack.

RagnarDanneskjold's picture

The next 10% will not bring the same laughs.

Depends how much gold you own.

malek's picture

 - We will refrain from competitive devaluation.

 - We will not target our exchange rates for competitive purposes.

Just like O's "help the struggling middle class", they are announcing the exact opposite of what they will do. Or already are doing. Also called overcompensation.

q99x2's picture

May asteroids and hemoroids strike D.C.

willwork4food's picture

One down, one to go.

The place is chock full of ozzing, walking hemoroids.

Spigot's picture

Competitive devaluation != Cooperative devaluation , but still devaluation. IMO BOJ finally signed on to cooperative devaluation, now they are "targeting inflation"...which has worked pretty well for the US, England and Europe, no?

Let the nre motto be ---> "Gentlemen, we either print together, or print seperately." (take off from quote "we either hang together, or hang seperately")

Global nominal GDP figures have to be enlarged by 200+% while total nominal debt stagnates in order for the ponzi finance situation to get back to where it was mid 1990's. TPTB have finally determined that a controlled hyperinflation across all currencies is required. The BOJ's policy change has signaled that the last stick-in-the-mud has finally capitulated to agree with that concensus.

sangell's picture

Fx is over my head but I can't help but wonder if Japan isn't being given a little breathing room because of China's behavior over the Senkaku Islands. That boycotts and officially sanctioned riots are not acceptable political behavior.

Yen Cross's picture

PUT/Call spreads are over my head!

  aud/jpy SHOWS promise.   Wishfull thinking.   I like to troll ( nzd/jpy)   I'm mental

They Tried to Steal My Gold's picture

The G-20 members on the brink of collapse HAVE NO CHOICE but to support the Japanese. JAPAN IS ONE OF THE POTENTIAL BLACK SWANS that could throw all the markets into 40-60% corrections. 


Not that it wont happen anyways - but they are trying to forestall the inevitable ....



Lost My Shorts's picture

Most at ZH would agree that Japan has no easy way out.  The status quo (unsustainable debt and fiscal deficits) can't go on.  It will be painful when they don't go on.  But they won't go on.  And it will be painful.  There is no mystery in there anywhere.

By devaluing the Yen, the Japanese are just taking the standard medicine (often imposed by IMF arm-twisting, but voluntary in this case) -- devalue, lower real wages, lower standard of living, restore some semblance of balance.  Of course it will hurt.  They have no choice.  It will actually hurt less than in some other countries, since they have an extensive (frankly oversized) public transport system, so people can easily switch out of their cars when petrol prices jump, and the extra revenue and higher load factor will allow transit companies to absorb higher energy costs without raising fares too much.

I wonder if Abe's big scheme was to start a hopeless pissing match over those stupid islands, and then get the G20 to green-light a massive Yen devaluation in return for not starting a world war over the islands.

Japan will need to renegotiate its social contract to some extent.  Like lots of other rich countries will.  I would bet on Japan pulling it off more easily than anywhere else.

Optimusprime's picture

Japan will need to renegotiate its social contract to some extent.  Like lots of other rich countries will.  I would bet on Japan pulling it off more easily than anywhere else.


It helps immeasurably to have a racially-homogeneous population. 

Yen Cross's picture

    Orly, gets banged around for sharing her ideas. She is a smart woman.

  I would trust Orly with my F/X portfolio.  She knows how to preserve wealth, and take a little risk...


Room 101's picture

Bruce: I'm not understanding a comment that you made to conclude the post. "The first 10% of the Yen correction was “fun”. The next 10% will not bring the same laughs."

I'm not an F/X trader and don't play one on TV.  For the F/X less than fluent, could you explain the significance? 

Thanks for the posts, BTW.  Well written and almost always worth the read. 

Bruce Krasting's picture

The weakness of the Yen the past 4 months has been a stimulus for the global stock markets. This up move was lead by the Nikkie, all other markets have followed.


Higher stocks makes everyone happy, so this has been a virtuous cycle...So far.


I don't there is a miracle behind the Yen deval. I think it will prove to be destabilizing at some point. We're getting near that point.

SmoothCoolSmoke's picture

Bruce, so, since Nov.: Yen down  =  stocks up.  Now you're saying Yen down = stocks down?  Bruce, stocks never down, just ask Alan Greenspan!

Room 101's picture

Thanks for the reply, Bruce.  That helps. 

Yen Cross's picture

I'm not speaking for Mr. Krasting "101".  He has decades of wisdom on me. I think he was implying that the drop in the ( ¥ ) was just a snippet of things to come.

CrimsonAvenger's picture

Much of this is over my head - good thing, I suppose, that I have not been nominated as Treasury Secretary.

Yen Cross's picture

 I'm long gbp/jpy. I love the risk reward on that trade.  The sterling has been pounded, and the yen can only take it higher.

 The $dollar is approaching the 200 day simple MA, and has failed 2 two times to cross it.

 I fucked up one small trade Bruce. Short aud/jpy 130 pips below.  The aud/usd still looks heavy, so I'll cut when the 10:00 a.m. NY options get filled if I want. Cheers ;-)

chump666's picture


*PM Abe on the wires saying BOJ law to change if inflation targets not met

Japan and China will be at war within 6mths. 

Orly's picture

He's been saying that.  He's going to pick a governor semi-conducive to that idea, even though most of the experienced bankers think it's nuts.

What he means is for the BoJ to lose all autonomy and credibility with the global central banks and be told by the Japanese parliament what to do.  Puppets is as puppets does.  More words out of these idiots!

Guess Abe didn't get the memo?  He's fitt'na git slapped.


chump666's picture

And the big problem for Asia, is Japan has declared FX war on the WHOLE of Asia.  It is also an antagonizing stab at China, hence the G20 saying, "Go ahead Abe".  When China was criticized for their Yuan manipulation.  I am NO fan of China at all, but too me that is outright hypocrisy and dangerous posturing. 

I mean, with Iran, the West actually devalued the Iranian currency to wage a economic war and start inflation/civil problems etc (of course the Iranians just went all USD).  Japan is allowing it's self to become an aggressor within Asia again, this time with America's/Europe blessing.

Not good.

Orly's picture

Let's all take a step back here.

Hasn't the yen been severely over-valued for the past six years or so?

Why should the Japanese take the brunt of a "safe-haven" currency, when it is clear that the Japanese economy is in a shambles, mainly because their exports have suffered on the back of said over-valuation? 

I would propose it's because of the Japanese culture that they aren't going to say anything; just meekly bow to the demands of the rest of the world for sins committed in the last century.  Speaking clearly, I don't see them doing that in der Vaterland, so why should we pick on the Japanese?

Well, when they actually say and do something about it, the world jumps up and calls them manipulators.  Personally, I think that's ridiculous.  They have a right to defend their economy, the same as everyone else does.


lasvegaspersona's picture

Japan is a failing client state of the USD$. They face the worst kind of pain. Little gold and lot of treasuries. How will they fare in a hyperinflationary event? Not well. I'm not sure I see their current actions as helpful in the long run. Their best bet might be to prove the correctness of the Prisoners Dillema....first one out wins.

chump666's picture

Japan is failed Keynesian experiment, that is the definition of economic insanity -  after their meltup boom and their bust in the late 80's.  The safe haven trade was only on because of 2nd biggest economy flows, same with the Japanese bonds, it's a very liquid market.  Now? With hedge funds destroying the YEN.  Well, USD is  now the only safe haven left.  Irony huh?

China is taking Japan out by crushing it's exports, so Japan is desperate and a desperate enemy...

As far as price fixing and manipulated FX, then there should be no FX market, just a fixed price band like China sets for it's Yuan.  My cousin's husband used to manage FX desks at a certain bank many years ago, many times he has said that volatility was more pronounced then compared to now.  Which means we have now a more so fixed pricing system similar to communism.  Of course we don't want to admit that.  Bank of America came out recently saying that FX is the place to be since equities are now volume-less ramps with no volatility.  But it's the same.  As far as war goes, well, FX wars lead to other other tensions.  The thing is, South Korea is mega pissed on their trade with the YEN, Singapore's exports came in weak -  they will be pissed, China will be super pissed and will continue with the Seneku tensions, which will 100% go hot.  The amusing part is the USD safe have on devaluation of emerging economics smells like an inflation hedge.  Which should by definition tighten liquidity on our markets, which could be capping our rallies at the moment.  

It's one big mess.


Moe Hamhead's picture

What is the asterisk after the "Union"s name for?

onlooker's picture

Except for Saudi no MENA, and S. Africa the only Africa. India? What kinda club is this?

ebworthen's picture

Like they give a shit about economic and financial stability; what a crock.

Central Banks are printing and buying the shit derivatives of the private banks. 

The currencies and the citizens under the currencies are being devalued daily.

The politicians are banker lackeys and don't give a rat's ass about anything but lining their pockets.

How can we know nothing will happen?  They are forming three committees.


apberusdisvet's picture

And while they are meeting, it's all champagne and caviar, Ukranian hookers and Justin Bieber look-a-likes, all while their economies implode; way to go you frickin' psycho perverts.

knukles's picture

Decisions decisions.
Say, isn't that Khadafi's old Ukrainian nurse?
Yeah, that one...
Over there...
The one with the Adam's apple.

Orly's picture

"Disorderly," means shut your cake-hole and let the market determine rates.

Did you catch the passage wherein they said that there will be increased co-operation between central banks?


knukles's picture

Hah ha ha ha ha ha
(maniacal laughter)

Means they'll all intervene on each others behalf when they all want their very own currency to cheapen relative to the rest.

Uh, something like a broken Nash Equilibrium come to mind, maybe?

Deacon Frost's picture

Longer term, competitive devaluation is a canard, this is because prices must and will ultimately catch up, quickly undermining any competitive advantage that arises from the devaluation in the short term.

Orly's picture

Exactly:  they all get the blonde.


lasvegaspersona's picture

Nash be damned

Prisoners Dillema? anyone

NoWayJose's picture

G-20 fundamentals just means having FUN wit DA MENTALS and the rest of the serf class.

knukles's picture

Ya know what galls my ass?
No, what Knukles?
Every time there's a list of nations and nation states in some multidimensional Illuminati like NWO organization, all the European Countries have a place at the table along with a vote, and then there's another seat for this thingamajig called the EU.
Like uh, double counting, maybe?
Like uh, how about some registration or IDs for voting, people!

Now, if we we're gonna play on a level field, the we'd here in the US of A have all 57 United States in these fucking things as well as good Olde Uncle Sam, right?
Show y'all some solidarity in a true tyranny of the majority, bitchez....

But oh, fuck me up to the elbow, tickle my small intestine, it don't work like that.

Ah, but I digress.

They lie.

The devaluations will continue ad infinitum.
This was forecast in writing, here, by me, years ago and it's my story and I'm sticking to it.
The only way out alive is with hard assets....
(Go figure... like maybe them shiny stuff... gonna be a wild and tough ride, folks...)

falak pema's picture

The devaluations will continue ad infinitum....

The "origin" of the fiat pump :  Jacques Rueff's analysis of the time line, from  1922 to 1968, of the gold exchange standard's explosion in 1968, leading subsequently to Nixon's 1971 decision. Pax Americana fiat hegemony.

He called it the Sin of Western Monetarism...


Dire, arid reading, but tells us why we are here. 

I much prefer this variation of the "origins" theme : L'Origine du monde - Wikipedia, the free encyclopedia

By Gustave Courbet, it is much more relaxing to view! She had a nice head too, did Joanne Hifferman, the model :

Joanna Hiffernan - Wikipedia, the free encyclopedia

PS : some awesome phrases from Rueff's analysis :

"Nothingness converted into currency"

"The layman often views convertibility as a mere financial tech- nicality. But in reality it is a matter of civilization, for it determines the status of Man."

"If criticising a system that can lead to the downfall of your friends, in this case the Anglo saxon countries, is a sin, then I am guilty. " 

"Making criticism of a doomed financial system a sacrilege is the view held in certain powerful circles."

"This system perpetuates a perennial deficit in America's balance of payments, inflation in creditor countries, and in the end, disruption of the monetary system by requests for reimbursement of the dollar balances so imprudently accumulated."

In many ways Jacques Rueff was the original TD!

He believed in Zero Hedging on the monetary front! 

Frozen IcQb's picture

Bruce, your general theme is corect but your recon about Canada is weak.

FYI, The Bank of Canada has been buying Government Bonds to the tune of 1 Billion plus each month for the past few years to refrain the Cando from appreciating.  Their balance sheet has gone ballistic just like all other central banks.

Just Google the term:       "Bank of Canada buys"    to get a sense of what I’m saying.