How Will The Japanese Yen Cope?
You may have heard about the UK cutting interest rates to try and stave off the effects that a recession would have on the country as a whole. This won’t prevent a recession from happening, but the idea is that it might lessen the impact it could have.
But it isn’t the only country to have done this – Japan also did it during December 2008. And perhaps understandably it didn’t have a very good effect on the Japanese currency. If you take a look at the figures that your currency converter was returning during the last month of the year, you will see that things didn’t exactly look good for the yen.
And which currency took advantage of this situation? Not surprisingly, the US dollar was the one to make a real gain from this, although the US dollar itself isn’t exactly in the strongest position it has ever been in. News of the situation broke on 22nd December, just a couple of days before the markets quit for the Christmas break. You can read more about it as it happened here.
But let’s take a look at those ups and downs between the yen and the US dollar. On the 1st December the US dollar was claiming 93.924 Japanese yen to the dollar. That wasn’t a bad start to the month but let’s see how it developed, because we can see from the figures that it depends on what day you are looking at and what is going on in the world as to how well each currency did.
It dipped slightly on the 3rd as the Japanese yen rallied slightly, resulting in a closing exchange rate of 92.996. Some five days later it was back on top though, with an exchange rate at the end of trading of 93.433. So far there wasn’t a lot of movement either way – but there was more to come as time went on and the month developed.
In fact from that day on there was a prolonged dip and weakening of the US dollar. The following day it was on 92.576, followed by 91.312 on the 11th and 90.112 to finish the week on the 12th. So where was the bad news coming out of Japan?
The US dollar dipped as low as 88.409 on the 18th of the month, but then it started to gain some ground again, taking advantage of Japan’s troubles. The next day it was back up to 89.483, and by the 23rd – a day after that news story hit the headlines – it had claimed 90.163 Japanese yen to the US dollar. This was where the effects of that bad news were being seen.
The dollar then stayed in the 90.0 territory for the remainder of the month and year, finally bagging an exchange rate of 90.637 on New Year’s Eve. This is a classic example of how you can trace when the news stories broke by looking at the exchange rate between two countries.
But of course, the US isn’t exactly immune to bad news when it comes to the economy and other related factors. Where one day Japan might be the one announcing the bad news and losing ground with their currency as a result, the next day the tables could well be turned. This means that we need to keep a daily eye on the exchange rates to see how things are progressing in the current state of affairs.
If you are new to taking a regular look at the currency markets though, you will see that there is plenty to learn from doing so. And if you are planning on a vacation anytime soon, it pays to try and judge when the best time to exchange your currency will be. All it takes is a well placed (or not) announcement from the head of one particular country, and your own currency could take a nosedive as a result.
One thing is clear from this situation though. No matter what announcements may come to pass in the future weeks, we are not going to be out of the woods for some time yet. The Japanese economy will struggle, that’s for sure, but so will the economy of every other country. It’s just a matter of how badly.
