The Japanese yen (JPY), the official currency of Japan, is the strongest and by far the most traded
currency in the Asian market. According to the recent Bank of International Settlement (BIS) survey,
the JPY is the most traded currency after United States Dollar and Euro. Japanese’s economy is the third
largest economy in the world and it is mainly orientated to world’s industrial production and exports.
Japan’s main export goods include computers, electronic devices and cars. The major trade partners
are USA and China, followed by South Korea, Taiwan, Hong Kong, Singapore, Thailand and Germany.
The economic situation of its main commercial partner, the USA, tends to have a direct influence on
Since the nineties, the Bank of Japan, the country’s central bank, has kept interest rates low in order to
promote economic growth. Low interest rates prompted investors to borrow money in Japan and invest
it in other countries, which in practice are known as carry trade. This has helped to keep the value of
Yen low compared to other major currencies. However, history has proved that this practice also makes
the Yen extremely sensitive to the financial crisis across the globe. The renewed concerns that the
recovery of global economy is losing traction fuelled the demand for safer assets.
Moreover, Japan was struck by a devastating earthquake resulting in a 10 metre high tsunami on March
11, 2011. The aftermath of natural calamity paralysed an already fragile Japanese economy significantly
affecting the nuclear power plant in Fukushima region. The yen rose to a post-World War II high versus
the dollar as risk of radiation leaks from crippled nuclear plants in Japan added to speculation that
insurers and investors will redeem overseas assets to pay for damages. The yen strengthened against
the US dollar and stood at ¥76.36 on March 17, 2011.
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