Japanese Yen —technically very strong against all their major currencies, damned impressive strength against the Australian Dollar. Traders are anxiously watching economic indicators and waiting for the government to step in. Currently, the Yen is trading in the mid-180.00s and is -0.10% lower on the day. Analysts say its further downside potential is limited by continuing fiscal constraints.
Japan’s Finance Minister Satsuki Katayama has emphatically declared the government is prepared to intervene. Their goal is to stop undue volatility and bring calm back to the currency market. The government is obviously concerned about the Yen’s volatility. Instead, they would stand ready to take action if the currency weakens rapidly. We’re not alone in feeling this way. Economist Takuji Aida agrees. He thinks that Japan is able and willing to take strong domestic measures to offset the adverse economic impacts of a weak Yen.
Even with those reassurances, Japan’s economy shrank during the third quarter. As a result, this was the first contraction in six quarters, putting fears of slowing momentum into the discussion. The current economic downturn is increasing the BoJ’s political pressure. Consequently, they should reconsider their hawkish position on interest rates and should postpone any scheduled raises. At the end of September, Japan’s cabinet passed a huge ¥21.3 trillion economic stimulus package. Nonetheless, this decision has raised alarm about the availability of new government debt, deepening an already complicated fiscal landscape.
Concerns regarding Japan’s worsening fiscal position are hindering JPY bulls from making aggressive bets on the currency’s strength. Cautious investors so long as uncertainty over the BoJ’s wake-up call policy tightening path continues to hang over investors’ heads, caution will persist. Hopes for intervention from the government provide additional support to the Yen. With the way economic conditions are right now, there’s a lot more guesswork involved.
In fact, looking at the Yen in performance against all other major currencies, the Yen has performed very strongly. It is currently up 0.06% on the US Dollar, 0.09% on the Euro and 0.10% on the British Pound. The Yen has gained 0.10% relative to the loonie. It’s up too, by 0.23% against the Aussie and 0.18% against the Kiwi. These market fluctuations are primarily due to traders responding to Japan’s economic indicators and announcements of policy changes, as well as underlying macro market fundamentals.
Amidst these currency movements, the yield on Japanese government bonds remains elevated, indicating that investors are closely watching both domestic economic developments and global market trends. This trend only adds to a confusing backdrop for currency traders as they weigh risks and opportunities.