The Japanese Yen is providing a wild ride to traders who dabble in global financial and currency markets. The Yen has been struggling to maintain its value against the dollar ever since the infamous Japanese economic bubble burst in 1990. But recently, Japan’s currency has been in such a deep slump that, for just a moment on Monday this week, it was trading at 160 yen to $1 US. That’s quite a drop from just a few years ago, when it was trading at 100:1.
After that low, reached during overnight hours, the Yen bounced back to 156:1 by midday on April 29. Such a dramatic move in price is not unheard-of in currency markets, which are famously volatile even by commodities-trading standards. Nonetheless, the magnitude and speed of the yen’s swings in value prompted speculation about whether Japan Is attempting to prop up its currency’s value.
The Bank of Japan has long kept interest rates artificially low in order to spur economic grown and inflation. This has had a deleterious effect on the performance of the Yen against currencies like the US dollar on the international market. Last week, a crack appeared in this longstanding strategy when the Bank allowed interest rates to rise above zero percent.
According to market watchers, that move helped spur this latest display of weakness on the part of the yen. The dip in price may have been a market reaction to the Bank of Japan’s failure to display a commitment to raising interest rates further in the near term. If interest rates remain low, the Yen’s value on the international market will continue to float in the low range, according to strategists in the Bank of America Global Research report.
The solid performance of the US economy also shouldn’t be overlooked at a contributing factor to the dollar’s relative strength vs. the Yen. Higher interest rates on US Treasuries also put upward pressure on the value of the US dollar.
