It’s the economy that cried wolf.
With growth slowing, deflation deepening, and the yen inexplicably surging in late August, Japanese policy makers pledged bold action. Bank of Japan Governor Masaaki Shirakawa rushed home from Jackson Hole, Wyoming, to deal with the emergency.
Investors braced for aggressive currency intervention. The media mobilized on Aug. 30 to cover Prime Minister Naoto Kan unveiling a fat stimulus package to counter the export-crimping effects of a strong yen. And then -- nothing.
Disappointment over token efforts resulted in exactly what Japan didn’t want: an even stronger yen, which has gone from 85.2 to the greenback on Aug. 23 to 84.1 on Aug. 31.
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Comment: Repatriation is under way and has initiated a self-reinforcing process, the more capital comes back home, the stronger the yen; the stronger the yen, the more capital applied abroad will be sent home.
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