Yen Strengthens In Correction Move

Posted January 05, 2010

The Japanese yen apparently had fallen too far and correction moves led to it strengthening against the US dollar. The South African rand rose against the yen. The US dollar declined against the euro The Australian dollar rose as commodity prices increase. The global recovery seems to be accelerating.


The US dollar lost against the yen yesterday as the technical statistics show the yen had fallen too far and too fast. The falling dollar then began to steady by early this morning. The yen appreciated to 91.78 yen per US dollar. Analysts predict the yen will stabilize over the next 6 months at approximately 91.16 yen per US dollar.

The yen also rose against the euro to 132.39 yen.  There appears to be yen buying by exporters as they repatriate overseas earnings. In fact, the yen strengthened against most global currencies.

The South African rand rose against the yen to 12.724 yen per rand. This is the highest it has been against the yen since last October.

In the US, investors are shifting to riskier assets as the global economy improves. The economy is on track for fairly steady recovery. There are a couple of reports expected to be issued this week including new unemployment numbers and factory orders for December. Both numbers will most likely show improvements in the economy.  In addition, fund managers are positioning investments in order to align portfolios for the New Year. There is an anxiousness to recover some of the lost profits as the markets normalize.

The US dollar fell to $1.4427 against the euro. The dollar index fell to 77.458. The dollar index measures the greenback against a basket of six currencies. The currency markets are expected to be fairly quiet until the US numbers are released this week. 

The Australian dollar also rose against the US dollar to 91.64 US cents. The Aussie rose against the euro to .6346 euros per dollar. The Australian dollar is primarily responding to rising commodity prices and the dollar is expected to rise further.

The UK pound reached $1.6081 against the US dollar yesterday.  Sterling’s 20-day moving average is approaching the 200-day average and sterling could experience a period of decline. The UK recovery pace has been intermittent. The UK and the US are now facing massive debt which is creating speculation about negative impacts on the respective currencies.

The global economy is improving everywhere you look. The Chinese manufacturing numbers show a record pace of increase in December. US factory numbers are expected to show a December increase also. The Institute for Supply Management’s factory activity index has risen to 55.9 which is the highest it has been in four years.

Even in the UK, the CIPS/Markit purchasing managers’ index showed a 25-month high of 54.1 for December which was better than expected.

January will see close review of monetary policies by central banks around the world. The US Federal Reserve will meet later this month and is expected to hold interest rates steady until at least June 2010. The Bank of Korea and the Reserve Bank of India also meet this month.

One negative sign in the world’s largest economy is the falling sales of existing homes. The US federal government implemented a tax credit program to promote home sales and that credit was responsible for propping home sales. With the credit set to expire, home sale numbers are once again falling. The implications of this is that the housing market is still too weak to operate on its own without government assistance.

In November the number of housing sales contracts for pre-existing homes fell by 16 percent. This means the US Federal Reserve will probably not change its monetary policy language anytime soon.