The dollar’s steep decline in interbank trading has prompted the Bank of Japan to intervene repeatedly in currency trade over recent weeks.
Despite the BOJ’s intervention, however, the dollar remains under downward pressure.
Concerns over a slower-than-expected U.S. economic recovery, plus fears of fresh terrorist attacks on the U.S., are weighing on the dollar. Other factors apparently at work include renewed worries over the U.S. trade deficit and corporate accounting practices aimed at inflating earnings.
The BOJ’s intervention was reminiscent of its dollar-buying maneuvers in the wake of the Sept. 11 terrorist attacks.
With doubts growing over Washington’s commitment to a strong dollar, the BOJ is acting unilaterally to halt what it has described as the market’s excessive volatility.
A government report on gross domestic product for the January-March quarter, due out Friday, is now widely expected to show a strong economic pickup, a typically bullish scenario for the yen.
Ahead of this year’s Group of Eight summit set for June 26 in Kananaskis, Alberta, the administration of Prime Minister Junichiro Koizumi is apparently aiming to wind up its deliberations on tax reforms and deregulation quickly so that it can compile a second package of measures to fight deflation in time.
Although the public approval rating for the Koizumi administration is waning and the government has limited room in which to spend its way out of its economic predicament, the government is expected to come up with a new package of effective measures to keep the economy from sliding into a deflationary spiral.
In a rare development, the dollar has also fallen in value against the currencies of natural resource-rich countries, including Canada and Australia.
There appears to be a good chance, nevertheless, that the greenback will recoup some of its recent losses.
Market participants will be forced to adjust their oversold dollar positions sooner or later, while BOJ intervention could keep the dollar in short supply, helping to underpin it.
Given the underlying U.S. economic problems, however, the long-term direction in the dollar’s value remains unchanged — downward.
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