Reuters:

Japanese Prime Minister Naoto Kan on Thursday renewed his pledge to take decisive steps to curb the yen's rise if necessary, as the currency held near a 15-year high against the dollar.

That morsel came within the last 24 hours. It’s getting tough to distinguish between these quotes from Japanese officials. It’s almost as if they have a note card they carry around in their jacket pockets; on that note card is a script of what they’re supposed to say when asked about the Japanese yen.

But it’s like they’re crying wolf at this point. Actually, it’s been as though they’ve been crying wolf from the beginning. There has been very little yen reaction to these comments, certainly nothing lasting. The only time the yen has actually given back significant ground to the US dollar was on actual intervention in the middle of September. Even the monetary policy decision to loosen up even more had little to no impact on the yen relative to the dollar.

Is the note card approach simply a strategy to get the market to do what Japanese officials don’t think they can do?

Mixed into the note card rhetoric over the last month or so was the idea that a new round of intervention would be most smartly undertaken when the US dollar beat-down subsided. Well ... it subsided ... for about 2 and a half days this week! Perhaps the Japanese missed their chance.

The euro is again higher today, leading the pack. Stock futures making new highs might help buoy the other major currencies that are showing mixed reaction after yesterday’s dramatic rebound. The Japanese yen started to soften overnight on Geithner’s comments, but that didn’t last long at all as USDJPY is back near 15-year lows.

USDJPY Daily:

Click on image to enlarge!

USDJPY (black) vs. Nikkei (red) Daily:

Click on image to enlarge!

The first chart above simply shows USDJPY; the second chart adds Nikkei futures.

Interestingly, the Nikkei bottomed out at the end of August after breaking support. That break of support was confirmed by a similar move in USDJPY. But now that USDJPY has broken key daily support, the Nikkei is not really playing along. Much of the divergence in this correlation happened in the beginning of this month. And it looks as though the Nikkei is finding support in a rising wedge pattern, which typically resolves itself by breaking out in the same direction as it entered (in this case, up.) That would mean holding at current levels and then breaking through about 9730.

Based upon the impact the persistently strong yen is having on major exporters, and thus the Japanese economy as a whole, one would think the Nikkei would be following USDJPY lower here based upon deteriorating expectations for corporate earnings. But that hasn’t happened recently.

So what’s the deal?

Maybe Japanese investors are anticipating a bailout, a la yen intervention. Maybe Japanese investors are looking at global economic growth prospects through rather rosy glasses. Maybe a combination of the two.

Maybe it’s a good time for the Japanese Prime Minister to stop crying wolf, put the note card away and utter to himself, “I think I Kan. I think I Kan. I think I Kan ...”

Though if he’s afraid of the big bad G-20 this weekend, maybe it’ll make sense just to go in and buy a whole bunch of shares to bid up the Nikkei. He could probably call up Mr. Bernanke for some pointers on that front.

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