Stark, the Suissie and the Yen

Today’s post has two parts:

Jurgen Stark’s resignation

Jurgen Stark officially resigned from the ECB for personal reasons. Stark had been a critic of ECB bond purchases from the troubled states of Greece, Ireland, Spain and Italy. His resignation on Friday prompted rumours that this could presage an imminent Greek default with financial markets falling around the globe … hmmmmm.

Where is the logic in that conclusion? If Stark resigned in protest at the ECB’s bond purchases, surely this indicates that the ECB will continue to support these markets and, more likely, that it intends to step up its activities in the immediate future? Far from signalling a default, Stark’s resignation signals a resolute ECB preparing to defend the creditworthiness of the European periphery.

Am I wrong?

The Suissie and the Yen

The Japanese MoF must be watching in awe at the bold move by the Swiss National Bank to peg its currency to the Euro. Japan has struggled to contain its strengthening currency but, equally, it has struggled to work out what to do with the USD 1T +++ holdings of foreign reserves that it has accumulated over many years of unsuccessful intervention. The SNB has a progressive Sovereign Wealth Fund in place to handle the potential rush of foreign reserves that it will buy as they sell the Suissie. The MoF has no such investment vehicle – form all reports, it recycles these assets back into US Treasuries and European Government bonds! Yikes! What is worse: an overvalued JPY or a portfolio of stressed Government securities?

While Japan might want to adopt a peg to the USD or CNY, this may entail significant reserve accumulation that it simply cannot deal with. My guess is that this will prevent it from following the lead set by its Swiss counterparts.