While this week was abundant in financial reports that affected many important currencies, we decided to do something a bit different today and place the spotlight upon someone we haven’t paid due attention to before – the Japanese yen.
Though we often tend to talk about the dollar, the euro, and the pound, the Japanese yen is actually pretty popular – after the USD and the EUR it is the most traded currency on the Forex market. The Japanese yen is also a popular reserve currency and in times of trouble for other major denominations the yen is considered a safe-haven.
A strong yen and a somewhat stagnant economy were until recently troubling Japan. As is the case with reserve currencies, if they are high in value exports from the home country of the currency tend to become quite pricey. As part of his plan to revive Japan’s economy, prime minister Shinzo Abe launched an ambitious stimulus program in 2016. Abe committed around $46 billion to welfare, infrastructure, rebuilding severe earthquake-affected areas, and small and medium businesses help due to the Brexit fallout in Japan.
The financial aid provided by the program is meant to boost the economy, increase consumer spending and inflation to a healthy 2%. It is not all that different from what the ECB has been doing across the European Union over the past few years.
Nevertheless, there seems to have been a shift of trends around the globe lately. The Federal Reserve in the United States has been periodically increasing interest rates since 2016, with the most recent increase this Wednesday. Stable growth and positive economic statistics are also pressuring the European Central Bank to consider cutting its stimulus program short, though Draghi still remains strongly in support of its continued application.
There was some expectation on the market that Japan might jump on the train towards higher rates. However, at its most recent report the BoJ confirmed it would keep rates as they currently are. This was a bit of a disappointment for investors and, as a result, the yen dropped to a two-week low at 111.380 versus the American dollar.
It appears that Japan intends to keep benefiting from a weaker yen. Right now it is taking advantage of the fact that the USD is (despite some ups and downs) going strong. Still, some analysts speculate that the US economy is not as strong as it seems and the economic data from the US is merely lukewarm, rather than exciting. If the dollar hits hard times soon, the yen will likely suffer as well (because it would involuntarily increase in value).
Overall, Japan seems cautiously optimistic about the future of its economy. The Bank of Japan is beginning to see moderate results from its policy and maintains that it would proceed with its stimulus package as planned. This is excellent news for traders, as now they know for sure that they should prepare for a lower yen in the months to come.
