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The Japanese Yen
When Richard Nixon suspended the convertibility of US dollars to gold in 1972, the fixed rate between the dollar and the yen was exchanged for a floating rate. The international value of the yen rose sharply and is today one of the most attractive currencies on the market as it directs the world's second largest economy. The yen is controlled by a central bank known as the Bank of Japan or BOJ. This central bank is under the supervision of the Minister of Finance. Over the past decade, the yen has fluctuated greatly. From early 1990 through mid 1995, the yen doubled in value from 160/$ down to 80/$. From 1995-1998, the yen lost value and was back up in the 140's/$. The trend in the past year has been a steady increase in value for the yen. Over the past six months, the yen has fluctuated. From April through mid-July, the yen floated between 124/$ and 118/$. Since then it has increased in value falling to the area of 105/$.
On Friday September 24, the closing rate on the yen was 104.24/$. Over this next week, the yen rose to a close of 105.0000/$. This means that the yen lost a little value in comparison to the dollar. This slight fall is not representative of what is going on with the yen however. Over the past few months, investors have put money into Japanese stocks. The government is putting pressure on the BOJ to increase the yen supply in order to stave off inflation and curb long-term interest rates. This pressure came after a G-7 meeting in which the members suggested that Japan do something to weaken the yen. Prices and wages are falling and output is below Japanese productive potential. Despite these factors, the BOJ is hesitant about responding because it is concerned that expanding the yen supply will cause inflation. Last week, Japanese companies were becoming more optimistic about economic growth. The BOJ didn't take in cash from money markets on Sept. 30, leaving in twice the normal surplus, so traders felt that the BOJ would follow the idea of expanding the yen supply. The BOJ is conducting a survey on Monday Oct. 4 to see how optimistic business sentiment is as the economy tries to rebound. The yen could rise this next week to its highest level since that 1995 value of 80/$.
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The closing value for the yen on Oct. 8 jumped up to 107.6000/$. The Japanese economy is still at the mercy of the strong yen although it has depreciated a little from last week because the economic recovery is strong enough for now to keep the yen from rising in value. The BOJ ran its quarterly survey, the TANKAN survey, which showed a strong rise in optimism among the big manufacturers about their business outlooks. Despite this optimism, there is still room for concern on the yen and for the economy. Businesses are having to cut jobs, increasing unemployment, which in turn will decrease consumer spending. The strength of the yen is making the Japanese exports worth less as the foreign currencies when payments are converted back to yen and is also making imports cheaper which will add to deflation. The government is till pushing for the BOJ to increase the yen supply or do some kind of monetization, but BOJ is still unwilling this week.
The BOJ decided Wednesday October 13 to keep its soft monetary policy, but it said that it would expand its range of market operations to try and make its policy more effective. The BOJ decided to begin buying short-term government securities as a new way of supplying yen to the money markets. The market had expected no change so the yen fell by more that half a yen to the dollar after the announcement. The government has lessened its urgency of the BOJ to increase money supply. Now it is putting together an economic package to stimulate the economy. In order to do this, it needs the BOJ to adopt a zero interest-rate policy for the short term borrowing it needs to finance the package. By the week's end, the dollar began falling in value relative to the yen after Alan Greenspan hinted at possible trouble for US asset markets; so as the yen tries not to rise in value, the dollar didn't help on this Friday Oct. 15 as the close was back down to 105.5000/$.
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