Yen Weakens As BOJ Considers Quantitative Easing Resumption

Posted December 01, 2009

The Japanese yen fell as the Bank of Japan policy makers consider new credit easing policies. The euro rose against the US dollar and is expected to continue strengthening. Dubai is working on restructuring half of its debt and that is calming global fears somewhat.


The yen fell late yesterday New York Time after the Bank of Japan made it clear currency market intervention is on the table if the yen continues to appreciate. The yen reached a 14-week high last week when paired with the U.S. dollar as continued deflation causes economic concerns. Japan’s policy makers have indicated that monetary easing might be necessary to prevent further price declines.

Japan will need to ease credit to stimulate the economy. The yen fell to 87.28 yen per U.S. dollar. The yen also fell against the euro to 131.12 yen. The Bank of Japan has no room to change interest rates because the benchmark rate is already at an historic low of .1 percent. The country currently has a program of quantitative easing in place meaning the main action still available is currency market intervention. But some analysts believe little impact can be achieved through an intervention strategy over the long term.

Japan’s government has been at odds over how to best deal with deflation. The new Democratic party put into power recently has been publicly critical of the Bank of Japan’s efforts to stimulate the economy.

The Australian central bank increased the overnight interest rate again which led to a weakening of the Australian dollar. It is hoped this increase will ease some of the inflationary pressures enough to limit the need for further rate increases in the near term. The current rate is now at 3.75 percent. The Australia dollar is at 91.56 U.S. cents.

Dubai is working on a debt restructuring plan that will deal with approximately half of the $59 billion debt it is unable to pay. The city-state is working with banks to restructure approximately $26 billion. This information has provided some assurance to the global financial markets concerned about a Dubai default.  The long term impact of Dubai’s problems are still undetermined though and will probably resound around the world in a variety of commercial real estate markets.

The U.S dollar weakened against the euro to $1.5016. The new emerging financial woe is a rising mortgage default rate in the commercial market. The rate of defaults doubled in the third quarter of 2009 and is expected to continue to rise. The recession has hit the commercial rental market hard in terms of both the number of vacancies and declining rents.

The looming commercial loan default rates have been predicted for many months. Continued defaults at an accelerating rate will significantly slow economic recovery in the United States. On the other hand, manufacturing numbers for November are expected to show an increase for the fourth straight month.

The euro is expected to continue strengthening as the global recovery continues. As mentioned, the euro was at $1.5016 against the U.S. dollar and has now posted five straight months of increases against the greenback. Technical indicators predict the euro will continue to climb to US$1.54 or more.