Hold back on praise for the dragonslayers
It is amazing what a little official intervention can do. Only three days ago, market commentators had accepted a yen/US$ exchange rate of 150 as virtually done and were talking of 180 or even toying with the idea that it could go to 200.
Asian stock markets were collapsing as if there were no conceivable bottom.
The wild-eyed man in the long beard and the white robe was out on the street telling us the end was nigh.
Then in rode those saviours of mankind, Clinton and Hashimoto.
Well, of course it was unlikely that the two would hold a scheduled well-publicised meeting and that nothing would be done to address the issue of crisis at the moment.
In hindsight, some support for the yen was inevitable.
It was either that or an ignominious leave-taking, which would have the electorates of both countries wondering why they bothered to vote at all.
But does this mark a longer-term change of direction for the yen, or only a political show that had the audience clapping while tomorrow the stage is empty again for a new production, which this time could be a tragedy? Perhaps the turning point has really come, but one has still to take the precaution that the strength of the yen now is only a short-term phenomenon.
Although there have been one or two hopeful signs, slightly better figures in retail sales growth for instance, most of the latest Japanese statistics still show a numbing economic performance growing worse.
My point is simply that high-level meetings can go a long way to instilling confidence when greater confidence is justified. But, if it is not, high-level meetings could be held every day and all they would produce is illusion. We still cannot be sure which it is.
There is another danger here. Central banks conceive it as one of their roles to smooth out currency movements when these are too rapid.
It is a laudable objective, but it also leaves them open to ambush by the very currency speculators whom they seek to restrain.
These sharks who take big positions on their own house accounts in forex dealing rooms around the world like nothing better than to see a big government player take contrary positions for reasons of social or political pressure rather than the real economic forces moving a currency.
It is clean-up time for them when they see it. Just ask some of them how much money they made in Southeast Asia last year from this sort of thing.
Don't pull out a microphone or a notebook when you ask them. They'd rather not let the whole world know. But they were chortling in the third quarter last year.
Their attack then was so fierce that in the end they may have wound up losing more money than they made for their employers. These Southeast Asian markets have virtually vanished.
But mostly they don't. What happens then is central banks that intervene achieve the exact opposite of what they intend to achieve. They intend to keep the speculators at bay, but the losses they incur in trying to do so are the profits the speculators make. They fund the activities they want to stop. They make the speculators stronger, not weaker.
I cannot say that this will happen now in the yen/dollar market. All I can say is that it has happened in the past and will happen again in the future, when governments occupy themselves more with their short-term political standing than the fundamental problems of their economies.
So perhaps we really do have white knights in Clinton and Hashimoto now. But before we call in the balladeers, let us make sure that they really have slain the dragon.
It takes a little more than slashing about with swords made of words.
These dragons have ways of rolling over and appearing dead and then suddenly coming to life again.
When they do, they are invariably fiercer than they ever were before.