Yen On Roller Coaster Ride With Big Drops

Posted December 07, 2009

The yen plunged last week against the euro and the dollar but experienced a slight gain late in the weekend. Canada is expected to hold interest rates at central bank meeting this week. The U.S. dollar was mixed when paired with major global currencies as investors wait to see when historic low US interest rates will begin to move upward.


The yen has been moving steadily downward against the euro and the US dollar. Last week saw a drop of 1.3 percent on one day against the euro and of 2.5 percent against the dollar. The drop occurred on Friday after the U.S. Department of Labor reported surprisingly good joblessness numbers.

Late last night New York time the yen changed direction for the first in the last five days against the euro and the dollar. The reason for the change in direction was twofold. Japanese companies appear to be repatriating funds earned overseas. In addition, exporters increased activity while the yen is low as the domestic goods became less expensive.

Analysts, economists, and investors are all trying to determine which country will raise interest rates first. The Federal Reserve has indicated rates will remain at current low until mid 2010, but that could change if it appears the recovery is moving faster than planned.

The yen was at 90.56 per U.S. dollar and was at 89.90 per U.S. dollar by late Sunday. Against the euro the yen moved from 134.54 yen per euro to 133.87 yen per euro. 

On 1-December-2009 the Bank of Japan implemented a 10 trillion yen credit program intended to slow what had been a steady advance by the yen. Apparently the program worked. Currently the government is considering additional stimulus programs with the GDP expected to contract by 5.7 percent for the year.

Despite the gains in the yen last Sunday and early Monday against the U.S., the greenback’s weakness is expected to continue.  The U.S. reported a loss of 11,000 jobs in November when over 120,000 had been generally predicted. This led investors to begin moving back into higher yielding currencies to pocket profits. All eyes on are on the U.S. Federal Reserve as it considers when to implement a stimulus exit strategy. Most likely, if the next jobs report shows continued improvement, the Fed will get more serious about returning monetary policies back to normal from crisis mode.

But currency traders are trying to protect themselves against an unexpected greenback rebound. They are also concerned there are more situations, such as the one surrounding Dubai’s inability to pay its loans, which will drive investors back to safe haven assets.  If interest rates are held low any dollar appreciation would probably be temporary.

Canada’s central bank will report its rate decision on Tuesday this week. It is expected that the overnight lending rate will be held at .25 percent. Canada has emerged from the recession and is reporting job gains, but the economic recovery is tepid at best. The current prediction is for a .4 percent expansion in GDP for the year.

The Canadian dollar showed little change at C$1.0545 or 94.8509 U.S cents per Canadian dollar.

The markets were fairly quiet over the weekend. The U.S. dollar fell against the euro to $1.4890 dollars per euro.  It also fell against the UK pound to $1.6472.