The Japanese Yen (JPY) emerged as the strongest currency against the US Dollar in recent trading sessions, showcasing significant percentage changes against various major currencies. On Friday, the AUD/JPY cross dropped for the second consecutive day. This decline indicates how volatile the market has become, as the JPY started to catch up ground. As of 7 December, Japan’s cabinet has approved a ¥21.3 trillion economic stimulus plan. This shift is meant to ensure economic fortitude as inflationary fears continue to hang over the economy.
The Japanese Yen, USD/JPY, rebounded from new multi-decade lows and increased by 0.22% against the US Dollar. It rose 0.07% vs the Euro and appreciated 0.04% vs the British Pound. In the JPY’s favor, it had a strong appreciation of 0.15% against both the CAD and AUD. At the same time, it continued its stability against the Swiss Franc, displaying 0.00% no percentage change. The Yen followed with a minor 0.07% rise against the Kiwi.
Recent strength in the JPY can be attributed to three major factors. Speculation that Japan’s authorities might intervene to prevent the currency from depreciating further was ignited over the weekend when comments made by Japan’s Finance Minister were misinterpreted. Those comments pointed to interest rate increases in the very near term. Such a change in policy might get the Yen back on track and yield better and more longterm investors.
Recent economic reports indicate that inflation in Japan has proven to be persistently high. It is still far above the Bank of Japan’s (BoJ) target of 2%. With inflation remaining quite persistent, the credibility of monetary policy’s newly determined strategy may soon be put to the test. It ignites speculation about future changes to the federal funds rate.
Consequently, given these developments, AUD/JPY spot prices have been seeing trades occurring in the 101.30-101.25 range. The headline position added last week indicates an increased confidence among investors about the potential for the JPY to strengthen even further.
The AUD/JPY cross – often seen as the risk barometer – is collapsing, confirming a paradigm shift in the market. Market participants are rethinking their trades as the Yen makes a comeback. Market observers add that this trend may persist if JPY continues to strengthen against other currencies.