The Japanese yen gained this week against other major currencies and headed to the biggest monthly gain since June against the US dollar on fears of the crisis in Europe and concerns that the health of the US economy is not as good as was previously considered.
The yen behaved in similar pattern against different currencies. It was rising on Monday, fell and erased most of its gains in the next two days, but surged in the last two days of the week.
The major threat for the yen was the expansion of the asset purchase program by the Bank of Japan. Yet the expansion was smaller than market participants expected and its impact quickly waned. Demand for the safety of Japan’s currency was simply too high. And why not? The downgrade of Spain’s credit rating, the slowing economic growth of the United States and various other worrying signs made investors feel uncomfortable and stick to safety. Sure, there were good news too, but at the end risk aversion prevailed.
As for the future, demand for the yen is expected to remain in place. The USA may still sustain its economic expansion, but Europe looks bad. The financial problems translate into political turmoil than in its turn prevent dealing with the economic troubles. And it goes on and on. Certainly, safe currencies like the yen thrive in such environment.
USD/JPY slumped from 81.50 to 80.25, while the weekly low of 80.20 was the lowest since February 28. EUR/JPY slid from 107.45 to 106.38. GBP/JPY was down from 131.40 to 130.51. CHF/JPY declined from 89.41 to 88.54.
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