Currency Market News: The Japanese Yen – an Unsteady Perch

Currency Market News

The Japanese Yen made headlines today as it appreciated more than expected against the Euro on news that Greek debt talks fell apart. Between the announcement of a Greek referendum on the Eurozone proposal and the news that the European Central Bank would not increase the emergency cash flow on a per month basis to Greece, the Japan saw Europeans buying the Yen with Euros. This is similar to how Europeans this week started by purchasing large amounts of gold, enough to give gold a healthy bumps of over 1%; gold, like the yen, is an island of a commodity, a safe place to run when things get bad.

The Yen’s gains are quite far removed from Japanese equities today- the Nikkei dropped 596.2 points as the market closed. What is more, the relative success of Japanese stocks that markets have seen in the past few months is inversely related- the stocks appreciate a weak currency.

Although the Yen is being used as a safe perch for capital to hide from the chaos, it is both unsteady and temporary. Europeans may have dumped their savings in the yen today, but nothing is stopping them from moving them tomorrow, perhaps to the American dollar which is trading at an all time high against the Euro, around $1.1 USD/Euro.

Bank of Japan governor Kuroda was quick to mix unconfident sentiments into the cauldron today, announcing that added quantitative easing may be on the way, curbing Yen gains. The Bank of Japan and the Japanese finance ministries do not want sudden rises in the Yen, and for good reason. The Japanese economy, like its currency, is still a mixed bag. Recession is still a very fresh memory in Japan, having ended their last bout with a shrinking economy in 2014. Japans finance elite do not want to rock the boat, and they do not want the boat to be rocked. Their ideal rate for the Yen is clearly lower than where European investors are going to force it, and in the end, the Japanese feds will have the last laugh, if the Europeans take their money elsewhere or not. An unstable, temporary perch is no better than no perch at all.

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