The Federal Reserve meets and decides monetary policy on Tuesday right in the middle of the most tumultuous time for global financial markets perhaps since the March, 2009 lows. As the Bank of Japan (BoJ) is furiously printing money to buttress its financial system and promote calm, I fully expect the Fed to issue a supportive statement. The Fed will likely remind us it stands by strong liquidity in the markets, and, with risks to the global economy now increasing, interest rate hikes will be banned even from the whisper and gossip rooms. I continue to assume the Federal Reserve is “scared to death” of any relapse that even looks like the onset of recession and thus, it will have a bias toward actions that lead to looser monetary policy.
Here is the chart of the S&P 500 that Bernanke and crew saw before bedtime (assuming they can sleep with unfolding events in Japan, including a plunge in the Nikkei as large as 14%).
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The trading action in the yen is a great reminder of how frustrated the BoJ must be with the currency markets. Neither crisis nor liquidity injections have drained the market’s appetite for buying the yen. The most recent explanation for this strength is a repatriation of currency to Japan as nervous investors sell assets and otherwise bring money back home to spend on recovery and/or preparations for additional emergencies. On Sunday a huge surge in the yen was quickly met with strong selling of the yen, presumably, from the BoJ taking action. This formed an important low and boundary for support in the yen currency pairs like USD/JPY:
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Could the yen's strength versus the dollar finally come to an end?
