Wednesday, January 31, 2007
Currency markets were rocked when Hammerin' Hank Paulson hit the tape 5 minutes before the month-end fixing. The headline read
*PAULSON SAYS HE IS WATCHING YEN VERY, VERY CAREFULLY*
That was all the headline-chasing FX market needed, and USD/JPY cratered as a result, no doubt making an unhappy end of month for many punters.
However, the substance of his remarks were very different from the initial headline. From the Bloomberg story:
Paulson said he judges that the yen reflects the economic``fundamentals'' of the Japanese economy rather than any sort of``intervention'' by Japanese government officials in thecurrency markets. Japan's authorities have refrained fromselling their currency for almost three years, he noted. ``There has been no intervention in the yen since March of2004,'' he said. ``I don't think there's been verbalintervention for almost a year. I don't like verbal intervention.''
He is talking to Congress...so of course he is going to say he is watching the yen. However, the substance of his remarks is that he knows why USD/JPY is up here, and he doesn't have a problem with it.
The $/yen sell-off, therefore, represents an opportunity.
Macro man therefore buys $20 million USD/JPY for the beta plus carry trade at 120.89 spot basis, which is 120.43 to the new 1 month forward date, 02 March.
Separately, Macro Man was filled at 6.96 in USD/SEK.