At times, a set of complex factors come to bear on a country's currency; sometimes these factors are seemingly illogical. Such is the case of the Japanese yen. The Japanese economy, along with the rest of the world, is getting weaker; the Japanese stock market is falling; exports are dropping; and the Bank of Japan warned this week Japan's economy probably will contract this year.
So then, why is the yen so strong? Well, first, Japan did not suffer large losses from the sub prime crisis, leaving Japanese banks in relatively good shape. Second, Japanese investors are deleveraging their overseas investments, creating large cash inflows into Japan. Third, the yen is now seen as a "safe haven" currency.
When trading against the dollar, the yen reached a thirteen and a half year high. It reached a seven year high against the euro. The downside of the yen's strength is that it is hurting Japanese exports. There is talk in Japanese banking circles that the Bank of Japan may intervene to curb the rise of the yen. While this move is not imminent, there could be action taken by this March.
Would you buy the Japanese yen?
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Reader Comments (Page 1 of 1)
1-26-2009 @ 10:44AM
Kent said...
Very interesting background information cited from this article on
the Yen. Come to think of it, we haven't had news about any bank
bail-outs occuring in Japan at all. Were the Japanese banks smart
enough to stay out of mortgaged back securities investment markets?
I think so because they already had their moments back in 1990 when
their property investment and loan portfolios went bust. Too bad our
FI's and government didn't learn from their mistakes but instead fell
into the same trap.
1-26-2009 @ 11:24AM
Iridium said...
The Yen is also very strong because Japan is still a very isolationist country. They have made huge gains in exports but also retained a very strong domestic manufacturing empire.
The Japanese people also make due with far less than their western counterparts. They weather hardship without complaint.
With a strong national currency Japan can also produce raw import materials far less than other countries. Helping to speed up a recovery.
Many Japanese corporations run seperate divisions for export and domestic consumption. The export wing of the business may fail but it won't take the domestic corporation with it.
Japan's biggest problem is foreign stockholders in large corproations such as Toyota. These stockholders have no sense of Japanese national pride and will destroy the company if sales decrease. It would be in the best interest of the company to buy up all foriegn held stock certificates.
Traders can blame the housing market and other factors as much as they want. The truth is that we are in this economic nightmare because of stock traders. There is no other factor. Traders overinflated the market due to arrogance and the belief that they were entitled to millions regardless of the consequences.