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Anyone Have a Yen for More Intervention?

Wednesday, 8 Jun 2011 | 1:09 PM ET
Dollar and Yen
Dollar and Yen

The yen is flirting with a key level against the dollar. Will central banks intervene?

Japan has plenty of challenges on its plate, thank you, without a strong currency making a tough recovery even harder. So with the yen hovering around 80 to the dollar, investors are whispering about a possible market intervention.

Actually, it's not just chatter. The IMF's acting head, John Lipsky, warned in a press conference that the G-7 countries are prepared to intervene again if it's warranted, given the success of the most recent intervention, in March.

"It's clear that the G-7 at least is willing to take action in the case of market conditions that appear to be disorderly," Lipsky said.

Before you trade on anticipation of an intervention, though, it's worth noting that some key conditions that existed before the most recent intervention are not present right now.

Marc Chandler, chief currency strategist at Brown Brothers Harriman, points out that volatility is much lower now than it was in March. In fact, 3-month implied volatility is at its lowest level since March 14. Also, the difference in yield between 2-year Treasurys and 2-year Japanese government bonds is about 22 basis points, much lower than the 60 basis-point differential of two months ago. It's quite likely, Chandler told me, that the move in yen-dollar is a result of dollar weakness rather than undue yen strength.

How would Chandler rate the odds of an intervention right now? "Two chances: slim and none, and slim just left town."

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