As the Japanese yen and US dollar continue their seemingly inexorable rise, it's becoming more and more clear just how large and diversified this market has become. The yen reached the almost unheard of level of 93 to 1 USD in early trading Tuesday while the dollar continues to appreciate against other major, and emerging, market, currencies. Even though the Yen quickly reversed from those levels, it still remains elevated relative to historic norms.

Along with share prices and property markets around the world, commodity prices-- whether it's oil, wheat, corn, sugar or metals-- have plummeted right along with them. And even though the price of gold has held up comparatively well, even that safest, most secure form of wealth, has not increased anywhere near the degree many thought it would, and should, have given the depth and seriousness of the financial crisis.

That's not to say that gold won't do well once the massive and ongoing de-leveraging and liquidations by hedge and other highly leveraged funds runs its course, a process that is progressing. Stock market and fund investors around the world are fleeing to preserve their wealth and fleeing to the safety of government guaranteed bank deposits as evidence for a sharp, prolonged and widespread recession mounts.

G7 central bankers, speaking through the US Treasury, took the extraordinary step Monday of warning forex market participants (read bank and fund forex traders) that continued appreciation of the yen poses extraordinary risks for the Japanese and global economy. Japan's prime minister called for central banks and governments to draw up new, additional emergency measures to calm and reassure financial markets' participants as the Nikkei 225 fell to its lowest level in 25 years.

Central banks haven't undertaken a coordinated policy of large-scale, prolonged currency intervention since the 1980s. It looks like they're rapidly coming to the conclusion that it's time for another round. Until the process of de-leveraging and unwinding carry trades runs its course, even coordinated forex market interventions are unlikely to achieve their aims, however.

The big economic news this week in the US will be not if, but by how much the US Federal Reserve's Open Markets Policy Committed cuts the Federal Funds rate, if this will be a second round of internationally coordinated rate cuts by central banks, and how negative Q3 US GDP will be. The Fed committee meets Tuesday and Wednesday. A 50 basis point (0.5%) cut is expected. US GDP is due out Thursday. A negative 0.5% figure is expected.

As I've suggested, a bottoming process is in the making as central bank and government emergency programs and measures begin to be put into effect. This may provide some short short-term support to both the Yen and the dollar, but as central banks intervene in the markets, but beyond that they are both vulnerable.

Jeff Manera, Editor

G3 Global Options
G3 Global Investor
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net