Yen (¥)

The government has been proactive when it comes to intervening in the currency markets. They are quick to threaten intervention however, when the yen climbs to a level the Ministry of Finance thinks is too high. The goal is to make sure that the yen remains relatively cheap so that exporters to the United States, the Eurozone and elsewhere will continue to benefit because of lower prices and be able to bring home higher profits besides. However, given the dislocations in world markets, officials have been thwarted in keeping the yen at acceptable levels.

 

Until the summer of 2008, increasing spreads between Japan's low interest rates and those in most other countries stimulated carry trades. This is where investors borrow in low interest rate countries such as Japan and then invest these funds in higher interest-paying countries such as Australia and New Zealand along with many of the emerging countries. When investors become risk averse, the trades reverse themselves and the yen rises in value.

 

 

In the immediate aftermath of the Great Japan East Earthquake, the yen rose. To help Japan, the Group of Seven agreed to intervene in the foreign exchange market in the immediate aftermath of March 11^th for the first time since 2000 to lower the value of the yen. The currency had soared in the earthquake's aftermath as speculators bet that firms would sell foreign assets and repatriate funds to finance the reconstruction. The yen then began to climb in value again as investors sought safe havens as they fled riskier assets. On August 4, 2011, the Bank of Japan acting for the Ministry of Finance intervened once again — but this time on its own. Since then it has intervened verbally as well as by stealth as it unsuccessfully tried to bring the yen back to earth. A surprise policy move by the Bank of Japan in February 2012, however, stemmed the yen's advance. A cooling of the European sovereign debt crisis combined with the weakening economy has also helped ease demand for the currency.

 

The Abe administration with the help of the Bank of Japan has talked the yen down significantly since September 2012. With new stimulus put in place by the BoJ at its April 2013 meeting, the yen traded around ¥98 to the U.S. dollar. The yen had been averaging about ¥102.3 to the U.S. dollar in the first six months of 2014 as investors see it as a safe haven for geopolitical concerns elsewhere. However, it has declined rapidly as the U.S. currency strengthened and averaged about ¥120 for January through May. The currency was up in June on flight to safety given the situation with Greece and China's faltering stock markets.