Yen Value Appears Headed For Intervention

Posted December 02, 2009

The Bank of Japan will not tolerate much more yen appreciation and public remarks led to a fall in value. The Canadian dollar rose to a 6-week high against the U.S. dollar as gold prices began to climb again. The South African rand strengthened also as commodity prices rose.


The Japanese Prime Minister Yukio Hatoyama said publicly that the yen’s strengthening will not be allowed to continue indefinitely.  That led to a fall in the yen against most major global currencies including the U.S. dollar.

The yen fell to 87.22 yen per dollar and to 131.69 yen per euro. The Bank of Japan is likely to intervene in the currency market as the yen approaches 87 yen. Over the last 11 months the yen has advanced 3.8 percent against the U.S. dollar. Currency intervention is a last resort strategy to manage currency values.

The economic recovery is heating up globally as investor risk appetite increases. These two factors together have been putting upward pressure on the yen. The yen also fell against the Australian dollar to 80.92 yen and against the New Zealand dollar to 63.53 yen.

Volatility in the currency market is being watched closely as analysts try to assess the impact of the recovery on the currency market. As recovery takes shape investors are taking on more risk in higher interest rate countries including the emerging markets. The current Aussie benchmark interest rate is at 3.75 percent compared to the U.S. rate of zero to .25 percent.

The U.S. dollar weakened to $1.5088 against the euro.

The UK pound recovered its losses against the euro and opened today London time at 90.80 pence per euro.

The Canadian dollar rose to a 6-week high as gold prices began to rise again. Gold is hitting new highs and reached $1,218.40 an ounce yesterday. Oil prices fell on the other hand to $77.80 a barrel for future December deliveries. But it’s gold that      pushed the loonie up to C$1.0406 against the U.S. dollar at one point.

One Canadian dollar will now purchase 95.67 U.S. cents as the currency settled at C$1.0453 by early morning Toronto time today.  Commodities account for half of the Canadian exports which is why the currency is sensitive to gold price movements. Analysts are predicting the loonie will reach parity against the greenback sometime in 2010.

Canada’s economy is improving at a faster rate than the U.S. economy. November’s numbers will likely show a net increase in jobs for November. The U.S. job market is still contracting.

The South African rand has strengthened to 7.2970 rands per U.S. dollar.  Analysts expect the rand to show further strengthening before the week is over as it continues an upward trend.

Dubai continued negotiations with the United Arab Emirates and a number of banks as it works to restructure the $60 billion currently due for its Dubai World investment.  The inability of Dubai to meet its debt payments shook the markets this week and made it clear there are further financial weaknesses yet to bubble to the surface on a global basis.

Prime Minister Gordon Brown indicated he intends on starting work for plans to cut the nation’s debt in half.

In the U.S. the national debt continues to grow. Last night President Barack Obama announced an increase in the number of troops being sent to Afghanistan and seemed to be quite vague on how it will be paid for. Also being discussed in the U.S. Congress is a massive national health care plan that will cost billions of dollars. These actions are causing concerns globally that the U.S. will be unable to manage its debt over the long term. This is particularly troubling to China which funds almost $800 billion of that debt.