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Bank Of Japan

On July 11, 2016, The yen fall in its biggest two day decline against the greenback since November 2014, as investors anticipated details of the stimulus package assured by Japan’s Prime Minister Shinzo Abe.

The currency drop by over 1% against all of its 31 major peers after Abe stated he planned to add fiscal stimulus after his success in the previous weekend’s upper house election. 

Yen is one of the most traded currencies in the whole world, exclusively because of  its low interest rate as the Yen is used in carry trades. Just recently the Bank of Japan has lengthened their purchase of Yen, expecting to reverse the deflation flow to inflation. Doubling this money supply is devaluating the Yen, increasing exports, but, increasing cost of imports at the same time, particularly for commodities.

On Thursday, August 18, the yen increase in early Asia, dropping below 100 to the greenback, ahead of trade data with markets also watching to jobs data from Australia as investors considered the current Federal Open Market Committee minutes of the meeting.

Although AUD/USD  traded at 0.7662, up 0.08%, USD/JPY changed hands at 99.92, down 0.36 percent.

The adjusted trade balance surplus in Japan in July is seen at ¥140 billion, with imports anticipated down 20.6 percent YoY and exports down 14.0 percent for a total trade balance surplus of ¥284 billion.

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On June 16, 2016, the yen increased to its peak level against the greenback in almost two years after Japan’s central bank left its policy untouched, the indication of how June 23, 2016  U.K. vote on whether  to exit the European Union is trying the hands of global policy makers.

The Japanese currency increases by approximately 2% in the wake of the Bank of Japan’s decision, temporarily touching 103.55 to the greenback, this is its strongest level since August 2014.

However, increasing the yen has become the main problem for the central bank, as it has prevented the Bank of Japan’s  determinations to strengthen inflation and spark progress, whereas making Japanese exports less economical abroad.

But worries regarding the British referendum  on June 23 urge some Bank of Japan policy board members to resist change. They  were worried that the effect of any additional Bank of Japan assistance would be smeared out if a U.K. vote for a so called Brexit shocked global financial markets, that would leave the central bank short of bullets to respond to that instability.

The Bank of Japan’s decision highlights how concerns over the U.K. poll have remained the hand of the world’s most influential central banks.

Fed Chairwoman Janet Yellen stated during the British referendum on whether to leave or not the European Union was a factor in Fed official’s  decision to hold near term interest rates steady that week.

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Conclusion: Japan’s government declared 4.6 trillion yen ($45 billion) in extra spending for the recent fiscal year, as Prime Minister Shinzo Abe seeks to strengthen the economy without leaving goals for improving fiscal health.

It is highly expected that the dollar-yen will probably head further south in the short term before making a rebound. The latest arrangements in dollar yen have been motivated by risk factors, with the most recent being afraid of a recession in the US. On the other hand, the comprehensive assessment of the yen is that it will continue to weaken for the reason that the only way the Bank of Japan can fuel inflation is through weaker currency.

Yen current moves have been bumpy and there was a warning against pushing up the currency too much. Although a weaker currency upsurge the cost of fuel and other raw material imports for Japanese companies, it is also seen as an advantage for the country’s major exporters and is important to recover Japan’s dying and decreasing economy.

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