Japanese Yen reached tricky level

12-01-2009 08:14

The Japanese Yen entered its second downturn due to the recent rally of the Yen versus the Greenback, while the Japanese real gross domestic product has climbed during two successive quarters. Export-focused businesses would be affected firmly by the strong rate of the Yen. Before the rally, Japan’s government stated that the Japanese economy faced weak deflation. Imported prices could be reduced as a result of the Yen’s rise, favoring consumers, while this would prompt deflation and decline the economy further.

Japanese Yen

Last Friday, the Japanese Yen posted the highest level in more than 14 years versus the US Dollar. After Dubai World requested to postpone debt payments, the Common European Currency dropped amid concerns about possible losses by European banks. The Japanese Yen has been considered as a safe-haven investment, as Japan’s economy was not directly affected by the financial slump that started in October 2008 in the US.

Yen’s rally

However, the Yen’s rally versus the Greenback is primarily the result of the almost zero interest rate in the North American nation, as the pessimistic prospects for the American economy also contribute. The Federal Open Market Committee (FOMC), a component of the Federal Reserve, signaled at the beginning of November that the present weak interest rates will be preserved during an extensive period, which will probably lead to a shift of funds to high-return instruments and currencies with a higher interest rate.

Hirohisa Fujii

Unemployment in the US rose to over 10% in October, while in the third quarter, the American gross domestic product grew for the first time in more than a year. In 2009, the US saw over 120 bank failures. There are also speculations that the US would accept a lower rate of the Dollar in order to boost its exports. It’s likely that the Yen’s rally was also boosted by Hirohisa Fujii, Japan’s finance minister, who restated its point of view regarding a stronger Yen. The Japanese business climate will deteriorate if the Yen persists its high levels. It’s essential that the Japanese government soon takes measures to fuel the economy and to secure employment, while it also should discuss the stabilization of the currency market with the United States and Europe.