Japan uses commercial banks to disguise currency market rigging

Section:

Where the hell could they have gotten such an idea?

* * *

Japan's Secret Yen Interventions Could Be Template For Future

By Javier E. David
Dow Jones Newswires
via The Wall Street Journal
February 7, 2012

http://online.wsj.com/article/BT-CO-20120207-719675.html

NEW YORK -- The Bank of Japan's disclosure Tuesday that it secretly sold yen for several days in November has been followed by relative stability in the yen's exchange rate. That has prompted analysts to suggest an invisible-hand approach might be a better alternative to massive interventions that ultimately fall short.

On Oct. 31 the BoJ -- acting at the behest of the Ministry of Finance, which sets currency policy -- entered markets to sell yen after it surged to a record high against the dollar. But analysts were caught off guard by MoF's admission that between Nov. 1 and Nov. 4, it conducted an additional $13.3 billion worth of "stealth intervention" by using a limited number of commercial banks sworn to secrecy.

Japan's clandestine dollar buying may have helped stabilize the yen. While the greenback has listed within a tight range of about four yen since October, it has yet to breach its record low at Y75.31. The narrow trading band has some market observers speculating the BOJ might still be actively managing its currency without the market's knowledge.

... Dispatch continues below ...


ADVERTISEMENT

Sona Discovers Potential High-Grade Gold Mineralization
at Blackdome in British Columbia -- 13.6g over 1.5 Meters

From a Company Press Release
November 22, 2011

VANCOUVER, British Columbia -- With its latest surface diamond drilling program at its 100-percent-owned, formerly producing Blackdome gold mine in southern British Columbia, Sona Resources Corp. has discovered a potentially high-grade gold-mineralized area, with one hole intersecting 13.6 grams of gold in 1.5 meters of core drilling.

"We intersected a promising new mineralized zone, and we feel optimistic about the assay results," says Sona's president and CEO, John P. Thompson. "We have undertaken an aggressive exploration program that has tested a number of target zones. Our discovery of this new gold-bearing structure is significant, and it represents a positive development for the company."

Sona aims to bring its permitted Blackdome mill back into production over the next year and a half, at a rate of 200 tonnes per day, with feed from the formerly producing Blackdome mine and the nearby Elizabeth gold deposit property. A positive preliminary economic assessment by Micon International Ltd., based on a gold price of $950 per ounce over eight years, has estimated a cash cost of $208 per tonne milled, or $686 per gold ounce recovered.

For the company's complete press release, please visit:

http://www.sonaresources.com/_resources/news/SONA_NR18_2011-opt.pdf



Although it won't show up in BoJ data for at least another few months, the compressed trading band "suggests the BoJ and MoF are still manipulating the market," says Michael Woolfolk, senior currency strategist at BNY Mellon in New York.

Of all major economies, Japan is the most aggressive about using intervention to cheapen its muscular currency. The country's forays into FX markets are nearly as frequent as those of the central banks of Brazil, Chile, and Peru, which sell their currencies to prevent them from undercutting exports. And in terms of its the absolute amounts bought, Japan dwarfs those smaller countries, and its $1.3 trillion in foreign-exchange reserves are second only to China's $3.2 trillion.

The yen is being propelled by a flight to safety stemming from Europe's debt crisis, and Japanese exporters' constant need to recycle dollars and euros made overseas back into yen. That means Japanese authorities are constantly fighting a strengthening yen. Within the 71 trading days following Japan's October intervention, dollar/yen has ventured above the Y78 level on fewer than a third of those days, and has traded above Y79 on only one occasion.

Market observers say using clandestine yen selling is likely to be more successful for the BoJ than public intervention when the market is so determined to buy yen. Because the public efforts have been met with failure, analysts say, Japan can save itself both money and credibility by conducting forays into markets that don't draw public attention. Analysts also point out that large-scale, public purchases of dollars merely deliver the yen at cheap levels to those who would buy it anyway.

"Central banks know they cannot change the fundamentals. They can only slow ... appreciation of the currency when they step in, and generally that will only work in a short time frame," said Andrew Busch, global foreign exchange strategist at BMO Capital Markets in Chicago. Given that current trends augur more yen strength, "Intervening quietly is the best way to do it," he added.

In 2010 the Swiss National Bank bought billions of euros to rein in the franc, which left them saddled them with a massive loss on their reserves as the franc continued to shoot to record highs. That forced it to take a different approach in 2011, when the SNB set a publicly stated target of CHF1.20 rate as floor for the euro. Since then, it has kept the euro floating above that level with only minimal purchases.

The record suggests the BoJ has been almost as ineffective in depressing the yen as the SNB was in softening the franc in 2010. After the world's third largest economy was brought to its knees by the earthquake and tsunami last March, Japanese policymakers secured Group of Seven backing for a dramatic yen-selling effort that sent the currency soaring. But in the months that followed, dollar/yen set new record lows on two occasions -- on Aug. 19 and Oct. 31 -- underscoring how hard it is for a central bank to fight the market.

Whether or not that failure prompted a change in strategy, observers now know that the MoF shifted to a disguised intervention approach immediately after that big intervention. At the time it was harder to spot than the large-scale efforts that preceded it.

The question now is whether they have continued with this tack and will do so in the future.

Japan's massive FX war chest means authorities have deep pockets they can use to introduce two-way risk to recalcitrant traders. Yet Woolfolk argues that the yen's overall strong trend means the BoJ would be "fighting a losing battle" by intervening openly.

"Intervention is most effective when it's unexpected," he says. "Stealth would be the preferred route."

* * *

Support GATA by purchasing DVDs of our London conference in August 2011 or our Dawson City conference in August 2006:

http://www.goldrush21.com/order.html

Or by purchasing a colorful GATA T-shirt:

http://gata.org/tshirts

Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:

http://gata.org/node/wallstreetjournal

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

http://www.gata.org

To contribute to GATA, please visit:

http://www.gata.org/node/16



ADVERTISEMENT

Prophecy Coal (TSX: PCY) Wins Positive Feasibility Study
for the 600-MW Chandgana Power Plant in Mongolia

Company Press Release
January 17, 2012

VANCOUVER, British Columbia, Canada -- Prophecy Coal Corp. (TSX: PCY, OTCQX: PRPCF, Frankfurt: 1P2) has received a positive feasibility study for the company's 600-megawatt Chandgana Mine-Mouth Power Project in central Mongolia. The report was independently prepared by Ralf Thomsen, project manager at Steag, a German firm specializing in the planning, financing, construction, and operation of highly efficient thermal power plants for fossil fuels.

The study covers technical specifications, deployment, and financial analysis of a 4x150-mw thermal power plant to be built adjacent to Prophecy's Chandgana Tal coal deposit, which contains 140 million tonnes of measured coal. Last year the power plant received a construction license and the coal deposit received a mining license. Engineering, procurement, and construction management selection and project financing discussion have begun and are expected to be concluded this year.

Construction is planned to start in April 2013, with the first 150-mw unit being commissioned in October 2015 and subsequent units to start in April 2016, October 2016, and April 2017. With proper maintenance the project will have 30 years of commercial operation.

For the complete statement from the company, including maps and charts, please visit:

http://www.prophecycoal.com/news_2011_jan17_prophecy_receives_power_plan...