ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintTitle ChevronIcon Twitter
Forex

Dollar correction driving up yen

The Japanese currency traded below 106 yen against the dollar on Tuesday.

TOKYO -- The dollar turned weaker across the board on Tuesday. The Japanese currency advanced as far as the mid-105 yen level against it. The euro changed hands for over $1.16 at one point, the strongest level for the common currency since August of last year.

Even the British pound, which had softened against the dollar since the beginning of the year due to the looming possibility of a U.K. exit from the European Union, has more or less regained lost ground.

The trade-weighted Nikkei Currency Index shows that the dollar has declined 8% from a peak in January against a basket of 24 peers. The reasons behind the drop-off can be traced back to summer 2014, when the U.S. started drawing investment money. For roughly the next one and a half years, the greenback continued to pick up steam amid an economic recovery, reaching heights not seen since 2002 as speculation grew about interest rate increases.

Then U.S. authorities started to noticeably change their tune. During April's meeting of the Group of 20 financial chiefs, Treasury Secretary Jacob Lew made remarks seen as a warning to Tokyo against intervening in the currency market.  

Last Friday, the Treasury Department placed Japan on a new watch list for foreign exchange practices, citing the country's robust current-account surplus.  

In December, the Federal Reserve Board hiked interest rates for the first time in nearly a decade, but the body has stood pat since. The growing market view is that this year will see only one U.S. rate hike.

As the image of the U.S. as the only major country raising policy rates weakens, speculative traders and institutional investors alike find themselves pressured to sell the dollar.

The strong dollar has become a hot-button issue in America, especially during a presidential election year and when the Trans-Pacific Partnership faces the ratification process. Additionally, the lofty dollar depressed profitability at export-heavy American companies last year.

A soft dollar also has the effect of propping up emerging economies. Dollar-denominated liabilities in emerging nations total over $3 trillion, data from the Bank for International Settlements shows, and a weaker greenback will consequently alleviate corporate debt obligations.

"Dollar depreciation can easily gain the acceptance of emerging nations, and the markets are mindful of the soft dollar as a long-term theme," said Daisuke Karakama of Mizuho Bank.

It was against this backdrop that the Bank of Japan decided against easing its monetary policy further on Thursday, despite a harsh consumer price situation.

"The BOJ's stance on its inflation target is wavering," said Kosuke Hanao of HSBC, sharing the view of other market players as they stepped up yen-buying and dollar-selling.

The short term may see sharp swings in the yen exchange rate since speculators have been guiding the market since last week. But because the period of yen depreciation underway since 2012 was born out of the BOJ's superloose monetary policy and the U.S. Fed's hawkish tendencies, fewer observers see the yen returning to a weakening trend.

(Nikkei)

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Try 1 month for $0.99

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends October 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to Nikkei Asia has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more