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A Short Story About the Yen
nvestors are cautious amid all the global economic uncertainty, especially in the United States. This means the dollar’s appreciation against the yen may be short-lived.
Behind the yen’s recent weakness, economist claim, lies improved investor appetite to sell the yen, which has been considered a safe haven during the financial crisis.
Investors also seem more willing to buy riskier assets on signs of improvement in the U.S. economy and monetary easing by the world’s top central banks.
The dollar rose to as high as ?81.22 during last weeks trading, the highest since summer.The dollar has now climbed almost ?6 since late
October, when the dollar fell to a postwar low of ?75.32.
Exporters showed relief because they were concerned a strong yen would hurt their earnings and force them to move more factories and jobs overseas.
The dollar-yen rates seems to me to be returning to a normal level the day the dollar rose above the ?80 level for the first time since early August.
The yen had attracted buying from investors who sought refuge amid tensions in financial markets while the sovereign debt crisis raged through the eurozone for months. The dollar, bottomed at ?76.03 on Feb. 1, but began to rise in the days that followed, when Japan logged its first annual trade deficit in 31 years.
On Feb. 14, the Bank of Japan announced the expansion of its asset purchase program by ?10 trillion and set a goal of 1 percent inflation to fight chronic deflation. The decision to inject more liquidity into the financial system surprised the market, accelerating the yen’s slide against the dollar.
Signs of improvement in the U.S. economy, such as employment and housing starts, have lifted investor hopes that the world’s largest economy will revive, and dampened the prospects of further quantitative easing by the U.S. Federal Reserve.
Moreover, monetary easing steps taken by major central banks, including the European Central Bank’s massive three-year refinancing loan program for European banks, have left the world’s financial market awash with cheap money, helping to improve investor sentiment and create an influx of money into stocks and commodities.
Originally posted here
