The Japanese yen crosses resumed their descent on Friday as investor sentiment took a beating on news that Bear Stearns faced a massive liquidity crunch. Indeed, shares of the firm fell over 40 percent as JP Morgan Chase & Co. and the Federal Reserve Bank of New York have joined forces to provide the financial institution with secured funding for up to 28 days.
The DJIA fell as much as 300 points shortly after the announcement, though the index closed -194.65 points at 11,951.09. The marked spike in risk aversion led the USD/JPY pair to finally break below the 100 mark, a level that we questioned as being excessively low in a recent special report. Nevertheless, the Bank of Japan is known to wait for the Japanese yen to hit speculative extremes before considering intervention, which are nearing (look for the release of Monday’s weekly COT report for more). Furthermore, intervention is most effective in the short-term at times of lower liquidity, which leaves us wondering if the Bank will take action at the market open next week or during the US holiday next Friday.
Author, John Kicklighter and Terri Belkas, Currency Analysts