The Game is Afoot
Regarding Chinese RMB or Yuan revaluation, we have previously posted several comments on blogs of note. My most recent comments maintained the RMB would be given a narrow sliding bandwidth.
In Asian markets, many short yen positions were abandoned prior to the weekend due to the possibility that China could announce a change in exchange rate policy. As a result the dollar went to a 5 week low vs. the Yen.
This speculation will offer near term support to the Japanese Yen, especially as there are still a high number of short yen positions.
The speculation over a yuan revaluation has come from comments in the Securities Journal, a state run financial newspaper. The Securities Journal stated that, following reforms of the commercial banking sector and foreign exchange market, conditions were now ripe for a policy change.
In the near term, there is a 50% chance of a widening of the trading band, possibly to around 5.0%. The change could also be allied with a switch to a trade-weighted basket.
The Japanese have invested heavily in Chinese business and in US Treasury Securities. This is the fulcrum necessary to leverage between China, Japan and the US.
Yen and RMB appreciation will temporarily help US exports and somewhat lessen the Japanese American Bond Carry Trade.
As the Treasury needs to service the debt on our bonds and attract new money, our interest rates and the dollar will rise in accordance with the Yen and RMB appreciation.
In Asian markets, many short yen positions were abandoned prior to the weekend due to the possibility that China could announce a change in exchange rate policy. As a result the dollar went to a 5 week low vs. the Yen.
This speculation will offer near term support to the Japanese Yen, especially as there are still a high number of short yen positions.
The speculation over a yuan revaluation has come from comments in the Securities Journal, a state run financial newspaper. The Securities Journal stated that, following reforms of the commercial banking sector and foreign exchange market, conditions were now ripe for a policy change.
In the near term, there is a 50% chance of a widening of the trading band, possibly to around 5.0%. The change could also be allied with a switch to a trade-weighted basket.
The Japanese have invested heavily in Chinese business and in US Treasury Securities. This is the fulcrum necessary to leverage between China, Japan and the US.
Yen and RMB appreciation will temporarily help US exports and somewhat lessen the Japanese American Bond Carry Trade.
As the Treasury needs to service the debt on our bonds and attract new money, our interest rates and the dollar will rise in accordance with the Yen and RMB appreciation.
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