Excerpt from: Forex Analysis
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| December 26, 2008 | | Political pressure likely to prevent Japanese yen depreciation |
For a few weeks now, the Japanese have been fretting about how quickly the yen has been rising in forex trading on the currency market. The yen has been appreciating against every other major currency as risk appetite declines and the carry trade unwinds.
Indeed, current conditions make it desirable for the Japanese government to intervene in the currency market and contribute to a depreciating yen:
- Japan's economy is slowing.
- Japan has entered its first monthly trade deficit in nearly 20 years.
- Japanese exports are more expensive -- making them less desirable.
- Corporate profits are shrinking due to forex conversion losses.
Forex Blog points out, however, that Japan is likely to stay out of it for political reasons.
The U.S. is likely to frown on Japanese intervention in the currency market
In all likelihood, the U.S. would like to see the Japanese yen continue to appreciate. It makes exports more expensive from Japan, and could help the U.S. become more desirable as a trading partner -- especially in terms of auto exports.
With political pressure from Europe and the U.S. for Japan to let the currency issues with the economy and the currency market work themselves out, it is likely (but by no means certain) that the Japanese government will eschew intervention in the currency market -- for now at least.
| Topic Tags: carry trade, currency market, economy, exports, forex conversion losses, forex trading, forex trading currency market, Japanese intervention currency market, yen forex trading | |
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