USD/JPY @ 90

The one that is likely to be the most shocking of all is the speed of change!

Speculative booms have already busted – in housing, commercial real estate, equities, commodities, emerging markets and above all, debts. There is a strong hope that the government comes in to repeal the law of gravity or prevent investors from selling. But it will be a blood transfusion with a falling heartbeat.

Nikkei plunged to a 26 year low and selling by investment managers, bracing for another wave of redemptions, also fed the declines. BUT the most interesting part is that as the financial crisis raised recession fears and it drives up the yen, piling the pressure on the country's exporters. One emerging cause of concern has been the rapid appreciation of the Japanese yen as investors who have in the past borrowed in Japan to invest in higher-risk economies are undoing those trades. This has caused a massive repatriation of funds into Japan, causing the yen to rise in value against other currencies.

Now, I see there is a strong case for FX intervention by MoF at USD/JPY 90, of which a break of that level could mean a quick move to 80 as market conditions may force a ‘line in the sand’ defense. I doubt that authority is running out of options.

Last week, it has triggered a stop loss orders below 95 Yen and it may test 90 Yen again, the lowest since 1995 when the USD/JPY fell to its historical low of 79.75 in April.

According to MoF, the yen below 95 has a strong adverse impact on Japanese exporters’ profitability, while the Nikkei at these levels will affect the whole economy, including banking sector capitalization. Last Friday, the authority has made verbal intervention in the special G7 statement on Yen’s recent excessive volatility. There are already large stop loss orders resting, taking the yen quickly to USD/JPY 90.87 and it would take a few trillions of foreign currency asset sales by Japanese retail investors to accelerate the Yen appreciation.