Wednesday, September 15, 2010

Help Jake Understand: Yen Intervention Edition

The WSJ details:

The yen plummeted against the dollar Wednesday after Japan intervened in currency markets for the first time in more than six years.

The dollar gained more than 3% against the Japanese currency after having dropped Tuesday to its lowest level in 15 years vs. the yen. Japan's Ministry of Finance said it would intervene again Thursday in currency markets if necessary.

Concerns over the pace of the U.S. recovery have recently sent investors flocking to the perceived safety of the yen, especially as investors speculate whether the Federal Reserve could implement another round of asset purchases to kick-start a moribund economy, which would likely weigh further on the dollar.


First of all... I am many things and a currency expert is not one of them...

With that said... I completely understand why Japan is intervening in the currency markets for economic purposes (a strong yen is hurting exports), BUT isn't the ability to literally print an overvalued piece of paper the ultimate prize?

For years, counter-fitters have printed worthless paper in the hopes of using it to buy things of value, but with Japan they can do this legally! Why not open up the printing presses and use that new currency to buy goods of value from abroad (I'm not talking other currencies, I'm talking REAL assets)?

To me this will result in at least one of the following (though, I'm sure there are 1000 more):
  • A weaker Yen (i.e. the goal)
  • Inflation (i.e. the best thing that could happen to Japan so that monetary policy would actually work)
  • Nothing to the Yen or to inflation, which means you got a bunch of real assets... for free.

What am I missing?

Source: Yahoo Finance