Yen rises, recovering from earlier losses

Bank of Japan’s extensive asset purchasing triggered the Yen to hit a one-month low in comparison to the US dollar. However, the currency rose on Wednesday, overcoming earlier losses that resulted due to the more than expected relaxing of the monetary policy by the Bank of Japan (BOJ).

The growing concerns over the euro zone debt crisis have forced major central banks to take aggressive actions and BOJ also followed their footsteps. Consequently, the Yen plunged against the dollar hitting a one-month low. On the other hand, the dollar reaches its highest level of 79.21 yen since August 22.

The uncertainties dominating the market, because of the deepening debt crisis in the euro zone has encouraged investors to move towards less risky currencies. The renewed worries about the European debt because of Spain’s reluctance in implementing a bailout plan drive the investors to take more risks.

The European Central Bank’s bond-buying helped the euro to rise against the dollar for a brief profit-making period before heading southwards because of the BOJ’s action that failed to avert the risks stemming from the Spanish debt crisis. The European Central Bank’s plans from diversifying out of the euro are also seen strengthening other currencies. At the same time, the release of the U.S. housing data also pointed out promising signs of recovery.

Earlier the BOJ unexpectedly increased its asset purchasing by 10 trillion yen, which is considered to be almost double the value that market experts had expected. Both the U.S. Federal Reserve and the European Central Bank followed the BOJ action. While the Federal Reserve aggressively relaxed its monetary policies, the ECB went ahead to buy government bonds in unlimited amounts, from the euro zone states grappling with the debt crisis.

However, many market strategists were surprised by the BOJ’s this unexpected action and according to them it was not anticipated, particularly at this time when the market was looking more at the European policy moves. The ongoing debt crisis in the euro zone is an issue of great concern for the majority of the market players, and they are now especially concerned about the Spanish government’s moves and the bailout plans. This is the reason why the timings of the BOJ’s action are being considered as highly unexpected. However, many market experts have their opinion that the current global monetary conditions will support the emerging currencies.

Because of the prolonged slowdown in the global economy, the BOJ Governor Masaaki Shirakawa has critically claimed that Japan’s economic recovery may take further six months to get back to the track. However, market analysts feel that it would be nothing surprising if because of the BOJ’s current decision the US dollar reaches above 80 yen.

The latest news of the US housing market’s recovery is giving a strong signal that the dollar is going to gain in the near future.  However, much of the market fate will depend on the actions taking place in the Euro zone, where Spain’s bailout plan will determine the market movements and the investor’s interests in a particular pair of currencies.

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