The Japanese Yen Weakened Despite Chinese Monetary Policy Tightening

Posted January 13, 2010

The Japanese yen weakened against the euro as Chinese monetary policy changes failed to shake market. The euro reached a one-month high against the US dollar as the European economy improves. The Australian dollar strengthened against the US dollar. The Argentine peso fell against the US dollar as the courts block an attempt to use reserve funds to restructure debt. Estonia is on track to join the European Union in 2011.


Wednesday was a mixed day of currency movements which is not surprising considering the economic news continues to be mixed also.

The Japanese yen weakened against the euro. The yen had been advancing through Tuesday as China tightened its monetary policy, but investors decided the tightening was not enough to cause any major shift in the economic recovery. Investors returned to investing in the higher yielding assets at that point. China’s central bank increased lender reserve requirements.

The yen was at 132.63 yen per euro. The yen remained mostly stable against the US dollar at 91.42 yen per dollar.

The euro reached a 1-month high at one point yesterday when it hit $1.4579. The US dollar is trending downward again as investors operate on the belief the US Federal Reserve will not be making interest changes until June at the earliest, and most likely it will be in the third or fourth quarter of 2010.  In the meantime, the Euro-Zone industrial output numbers show an expansion for November.

The belief the US interest rates will not be changing any time soon are based on comments made by the New York Federal Reserve Bank President. William Dudley said he would not expect interest rate increases until the US unemployment rate begins to drop. Right now joblessness is stuck at 10% with no real clear idea as to whether it will rise or fall in January. The projection is that unemployment will remain high for this year and perhaps well into next.

The Chicago Federal Reserve Bank President, Charles Evans, reported the Dudley comment means that interest rates will probably not change for another 3 to 4 meetings. The Federal Open Market Committee meets the end of the month to discuss Fed policy.

The Australian dollar strengthened against the US dollar to 92.38 US cents. The Australian economy is on the mend and in December there were 10,000 jobs added.

The Argentine peso is weakening against the US dollar and is now at 3.7964 pesos per dollar. Argentine President Cristiana Fernandez de Kirchner is intending on using up to $6.6 billion of reserves from the central bank to pay down debt. The  concern among investors is that this move will weaken the peso. In the President’s defense, she is trying to restructure defaulted debt but the country’s federal judge has blocked the action.  Analysts believe using the reserves could cause a capital flight out of the country.

Estonia is hoping to join the European Union in 2011 and got a lift up today from the Euro-Zone’s largest economy. Germany said that Estonia is on track to introduce the euro in the year 2011 despite the recession. If Estonia is accepted by the European Union Commission, it would be the 17th country to join.