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The following article was published in our article directory on August 20, 2010.
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Sharp Rise in the Yen Exchange Rate the Driving Force Behind

Article Category: Business Management

Author Name: xia zihui

Recently, the international foreign exchange market U.S. dollar against Japanese Yen in general remained low. In the current sluggish Japanese economy, Japan's central bank long-term benchmark interest rates remain low in the case, the yen rising against the dollar, for a time seemed quite to the somewhat strange to people.

At first glance, the yen higher against the dollar seems unreasonable. Comparison of the macroeconomic situation from the point of view, Japan and the U.S. have a serious impact on the international financial crisis, but relatively speaking, the United States are even slightly better economic situation in Japan. According to the International Monetary Fund (IMF) released in July of this year's "World Economic Outlook" report, 2010, the U.S. economy will grow 3.3%, higher than Japan's 2.4%; 2011, the U.S. economy will grow 2. 9%, also higher than Japan's 1.8%.

And from Japan and the U.S. monetary authorities to determine the level of the benchmark interest rate perspective, there is no significant difference between the two countries also. Since December 2008, the Federal Reserve has been keeping the federal funds target rate to 0.25% in the zero-time low. At the same time, since December 2009 since the Bank of Japan will not guarantee overnight inter-bank lending rate has remained at 0.1%. The two economies, Japan and the U.S. benchmark interest rates are currently close to zero, not much difference.

However, the exchange rate determinants are very complex, in addition to the macroeconomic situation and the benchmark interest rate, there are many other factors. Behind the current yen exchange rate is an important factor is the high yen speculative funds are from the U.S. back to Japan.

Although the current Japanese and U.S. interest rates less the same, but since 1991, the Japanese benchmark interest rates sharply lower, and kept at a lower level. In 1991, the Japanese benchmark interest rate more than 8% in the second half of 1995 has dropped to about 0.5%; after 15 years, the Japanese benchmark interest rates below 0.5%. Over the same period, the United States most of the time the benchmark rate at 2%, and the highest more than 6%. Over the past 20 years, Japan and the U.S. benchmark interest rate differences, the direct promotion of the so-called yen "carry trade." Simply put, that is, access to investors at very low interest rate yen funds through foreign exchange market into other higher-yielding currencies, and then invested in higher yielding U.S. Treasury bonds and other areas in which to earn interest difference. It is difficult to fund the scale of such transactions have much in the end, but many people think that the yen was speculation that such arbitrage major currencies.

Recently, as the international financial markets, investors worried about volatility in the world economic situation once again, turned to hedge purchases of U.S. bonds, U.S. Treasury prices higher and then push interest rates lower. As the U.S. Treasury interest rates lower, many investors turn to sell dollars and buy yen, the so-called "carry trade unwinding of speculative" operations. This process intensified pressure on the yen's appreciation. In addition, the Federal Reserve monetary policy decision-making in the recent regular meeting after the hint, it is possible to take further monetary easing, the dollar has also led investors to look at.

International capital flows from the point of view, this year 1 to 7 months, foreign investors bought a net 5.5 trillion yen in financial assets in Japan, this phenomenon provides some support for the yen higher. A large number of foreign investors bought yen assets, while foreign exchange reserves with a number of countries have taken diverse strategies, but also with many portfolio investors to increase the yen. It is speculated that a large part of which funds may be evolved by the U.S. dollar.

At the same time, although the Japanese mutual funds over the same period the net purchase of foreign assets also increased by 2.8 trillion yen, but most of the inflow of funds into high yield in Brazil and other emerging economies, the U.S. dollar exchange rate but did not produce significantly affected.

The yen will rise to some extent weaken the competitiveness of Japanese export products, the recent Toyota, Toshiba and other Japanese exporters price setback is for this reason. In the current Japanese economic recovery remains very fragile context, the yen rose against the Japanese government constitutes a certain pressure. Recently, including including Japanese Prime Minister Naoto Kan, one after another to the market more than government propaganda officials to express concerns about the yen appreciation. Market rumors that, if the dollar further, do not rule out the Bank of Japan intervened in the future the possibility of the foreign exchange market.

However, since 1995, the yen hit a record high since many Japanese companies in internationalization has taken great strides, the yen appreciation on Japan's economy has been like 15 years ago is so great. Japanese automobile industry as an example, from four years ago, Japanese cars enterprises of overseas production has exceeded domestic production, this "localization" Celue no doubt will reduce the exchange rate fluctuations on the Japanese auto company profits.

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