Japanese Yen traders fear an intervention by the Bank of Japan if the Yen continues to appreciate. The problem is no one knows at which level the Bank of Japan will act. Traders cite the recent forecasts by Japanese automakers of profit declines in 2009 as the main reason for the need for an intervention at this time. Toyota issued its warning earlier in the week. Nissan said yesterday that its profits would go to “zero”. They blame lower sales in the U.S. and the stronger Yen for the anticipated losses. Automakers in China are also reportedly asking for government assistance.

Japanese exporters need the support of the Bank of Japan soon. Traders are speculating the Bank of Japan will need to send a serious message to the Forex markets at this time. This could come in the form of a massive selling of Yen coupled with an increase in money supply to assure the intervention takes hold. This action should have a strong dilutive effect on the Yen.

The weakening stock markets are driving traders to the Japanese Yen. An intervention should weaken the Yen which could then trigger a strong rally in U.S. equity markets. The question is not if this intervention will take place but when and at what level.