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Central Bank's Intervention Succeeds In Weakening the Yen
Last week's most significant development in global currencies was without a doubt the Bank of Japan's (BoJ) decision to intervene in the national currency's trading for the first time since 2004. As a result, the yen fell about 150 pips vs. the U.S. dollar, and about 500 pips against both the euro and the British pound.
The Bank of Japan's decision came after the yen reached a 15-year high against the U.S. dollar. The Japanese economy largely depends on its export industry, which is hit hard when the yen is overvalued. Experts say that the BoJ has ordered to sell as much as 1.8 trillion yen ($21 billion). As a result, the yen had its biggest weekly decline against the greenback since April. In addition, Finance Minister Noda said that the government will continue to intervene if necessary, hinting that Japan will take actions to prevent the yen from reaching record highs again.
As for the week ahead, investors are curious as what the long term effects of the BoJ intervention will be. Will the yen continue to weaken, or will investors try to fight off the aggressive sell off? In case the yen will begin to erase last week's losses, traders are advised to ready themselves for additional intervention from the Japanese government.
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