To Curb Or Not to Curb the Yen

Japanese officials talk about curbing the yen's rise, but whether it's just chatter - or whether it will work - is unclear.

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After twenty years of economic stagnation, and persistent anemia in their stock market, you would think the Japanese would have had enough of a strong yen.

In fact, the moves of the dollar-yen pair have long run extremely close to the Nikkei average: since 2006, there has been a 91% correlation on a weekly basis between the moves of dollar-yen and the Nikkei, according to a new analysis by Bank of New York Mellon.

Which leads us to the $64,000 question: with the yen's recent strength, are the Japanese frustrated enough to move in and intervene now?

"Good question and tough to say," Simon Derrick, chief currency strategist at Bank of New York Mellon , told me. Intervention by the Ministry of Finance, or MOF, "hasn't been particularly consistent over the past two years."

Derrick believes Japan is likely to forego active intervention for now and limit itself to jawboning before the next Bank of Japan meeting at the end of April, "given how effective QE proved in February compared to the previous intervention.

"Perhaps the only thing we can really say is that the MOF has (sensibly) tried to keep a degree of unpredictability about its operations in order to preserve their effectiveness," he told me.

Chris Fernandes, vice president and forex adviser at Bank of the West, thinks another round of asset purchases is a definite possibility at the upcoming Bank of Japan meeting.

"," he told me, and his trading desk is slightly long dollars against yen. He is also watching the situation in North Korea, which he thinks could weigh on the Japanese currency. All in all, he told me, in the near term he believes the yen could reach 83 to 84 against the dollar.

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