The first and most immediate item we need to note is the Bank of Japan’s (BoJ) currency intervention.
Prior to this, all currency interventions were generally indirect (the Fed’s QE program) or not generally promoted (the Swiss banks numerous attempts to buy Euros and suppress the Franc).
In contrast, the BoJ’s move was not only sudden, it was promoted.
Japan Finance Minister Noda: MOF Intervened In FX Markets
Japan's government sold yen Wednesday, pushing the dollar up sharply. It was Japan's first foreign exchange market intervention in more than six years, Finance Minister Yoshihiko Noda said.
Noda said the ministry would take decisive steps, including intervention if needed. He said the intervention was aimed at curbing excessive fluctuations in the foreign exchange market.
Moreover, Japan stated it would:
1) Intervene more in the future if needed
2) Use the funds from the intervention to provide liquidity to the stock markets
The move, while hinted at previously, was a bit “out of left field” (the BoJ had not intervened since 2004). The Japanese Yen is one of the primary carry trade currencies to borrow in (the US Dollar being the other). So Japan’s move was largely seen to be “pro-risk” resulting in the Nikkei spiking.
However, it marks a major turning point in the financial crisis. Going forward, the key issue for the financial markets will be currency interventions. Japan’s move can, in a sense, be seen as an open declaration of war between the BoJ, the Federal Reserve, and other Central Bankers.
Indeed, we can’t leave the European Central Banks out of this. Indeed, the most noted currency intervention prior came from the Swiss Nation Bank which bought Euros by the billions in an attempt to keep the Swiss France/ Euro trade low. And Germany and other European countries want the Euro low to boost their exports.there is more