Bank of Japan Could Be a Factor if Yen Continues to Appreciate

The Japanese Yen is trading higher this morning once again because of the weakness in the global equity markets. Traders are buying the Yen despite the fact that Japan’s economy has officially entered into a recession. Traders are shunning risk at this time and favoring the safety of the Yen.

The Japanese Yen is trading higher this morning once again because of the weakness in the global equity markets. Traders are buying the Yen despite the fact that Japan’s economy has officially entered into a recession. Traders are shunning risk at this time and favoring the safety of the Yen.

 

The Bank of Japan expressed concerns several weeks ago that a higher Yen would damage the economy. The rise in the Yen at the time was met with the threat of an intervention. While this threat stopped the gain at least temporarily, the recent renewal of strength is reviving talk that the Bank of Japan stands ready to act once again. At this time the Bank of Japan is trying to talk the Yen down in the media. Yesterday Japan Finance Minister Nakagawa stated that the U.S. Dollar should remain the world’s reserve currency during periods of market turmoil. This was expected to put some pressure on the appreciating Yen which is already forcing Toyota to lower profit forecasts in 2009. If the Bank of Japan cannot trigger selling pressure in the Yen in the near-term, then expect a more aggressive selling intervention to take place to stem the gain in the Yen.