Yen Considered Safest Currency?

Posted July 07, 2009

The yen strengthened in response to expectations that second quarter US earnings report are expected to show losses. The UK pound fell again in response to plans for expansion of the quantitative easing program. Venezuela’s bond sale failed with less than half of the bonds sold.


Yesterday, 7-July -2009, proved to be an interesting day in the financial markets.  It included falling stocks, failed bond sales, and a rush to move money into safe haven assets.  Clearly there is growing concern about the depth of the recession.  After a month of virtual euphoria as seen in rising stock prices, the markets are now readjusting to the realization recovery from the recession is still far in the future.

Will the yen become the primary haven currency over the US dollar?  A currency strategist at the Bank of Tokyo in London believes it will as the greenback weakens over time due to reserve diversification and US debt.  He may be right if you consider the yen remained high after May machinery orders fell by 3 percent when there had been an expected 2 percent increase.

Yesterday the yen rose against the euro and the US dollar.  When paired with the euro the yen reached a six-week high of 131.20 yen.  The yen also rose against the US dollar to 94.56 yen per dollar. 

The reason the yen put in such a strong showing is because there is concern over what the coming second quarter US earnings reports are going to show.  There is expectation the earnings will show a continuing decline due to the global recession.

The South Korean won fell against the US dollar to 1,279.05 after Asian stocks fell.  The increasing worries over the status of the recession are dragging everything down once again.  The daily ups and downs in what has been called knee-jerk investor reactions to economic news are reminiscent of events six months ago but are occurring with less severity.

The Group of Eight meeting started yesterday in Italy but there is little news so far.  China’s President Hu Jintao decided to return to his country to deal with the riots currently going on in Xinjiang where at least 156 people have died so far.

Venezuela had a failed bond sale.  Petroleos de Venezuela tried to sell US$3 billion in bonds and instead sold only US$1.42 billion.  Purchasers can sell the bonds internationally to obtain dollars and bypass Venezuela’s currency restrictions. 

The bolivar fell to 6.65 bolivars against the US dollar.  Venezuela’s President Hugo Chavez has ordered the official exchange rate set at 2.15 bolivars per dollar. 

The UK pound weakened to US$1.6156 as it becomes clearer each day the government will probably expand its policy of quantitative easing.  The pound also fell against the euro to 86.47 pence and the yen to 153.78 yen.  If the UK decides to expand its money printing program past the 150 billion pounds already injected into the economy, the pound will continue to weaken.

The UK government is being urged by several groups to increase the asset-purchase plan.  One of those groups is the Shadow Monetary Policy Committee formed by the Institute of Economic Affairs.  The committee believes the stimulus spending to date has not been enough to help the economy recover from the recession. 

The Canadian dollar weakened against the US dollar to 85.81 US cents as commodity prices dropped.  The August delivery price for crude oil, Canada’s largest export, fell to US$62.24 which is the lowest price it has seen in over two months.

The Swiss franc is being watched closely after the central bank said it would intervene if necessary.  The franc fell to 1.0856 francs per dollar which is a .1 percent decline.  It remained the same against the euro at 1.5172.