The currency war “truce” at the G20 meeting in February of this year has effectively placed political pressure on Japan to refrain from further depreciation of the yen. We investigate whether this has frozen USDJPY at its “fair value”. Although a naïve reading of PPP figures suggests that the outcome is reasonable, adjustment for productivity differentials suggests that the yen is now heavily overvalued versus the dollar, with attendant negative consequences for the Japanese economy.
The uncertainty associated with the outcome of the referendum on Britain’s EU membership is already affecting financial markets and the wider economy. By examining the pricing of derivatives, we can identify the price the market is putting on this uncertainty, and what movements in currency are expected between now and the referendum itself.
•The economic rationale for entering, and ultimately exiting a regime of exchange rate interventions is markedly different for the Czech National Bank relative to the Swiss National Bank.
•The central bank balance sheet, politics and nature of the underlying economy (and currency) are, amongst other things, important factors in helping determine the likelihood of a central bank continuing to intervene in the FX market.