Currency Watch : The Japanese Yen

yen

The Yen is the third most traded currency in the foreign exchange market after the United States dollar and the euro. It is also widely used as a reserve currency after the U.S. dollar, the euro, and the pound sterling.

After World War II, the Yen lost much of its value and in 1971, fixed the exchange rate to the US Dollar at a rate of 308 JPY to 1 USD. This lasted until 1973 when the government decided to maintain a policy of currency intervention and switched to a floating exchange rate which has been maintained until today.

Exporting the Yen

The Japanese government also focuses on a competitive export market, and tries to ensure a low yen value through a trade surplus. The Plaza Accord of 1985, temporarily changed this situation; from its average of ¥239 per US$1 in 1985, to ¥128 in 1988, and led to a peak value of ¥80 against the U.S. dollar in 1995, effectively increasing the value of Japan’s GDP to almost that of the United States. Since that time, however, the yen has greatly decreased in value.
Policy of Zero or near Zero interest Rates

The Bank of Japan maintains a policy of zero to near-zero interest rates and the Japanese government has an extreme anti-inflation policy. Due to its relatively low interest rates, the Japanese Yen is often used in carry trades with the Australian Dollar & the US Dollar where a currency with low interest rate is sold in order to buy a currency with a higher interest rate.

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