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Yen’s Gains Reverse after Massive Rate Cut

October 9, 2008 at 10:37 by Andriy Moraru

Japanese yenThe Japanese yen fell against other major currencies today after reaching record highs yesterday as the massive rate cut by the world’s major central banks inspired some confidence in the stock markets.

The yen also declined versus its traditional carry trade counterparts — such as Australian and New Zealand dollars. Not like the carry trade began to attract the investors again, but the risk-aversion is not a trend-setter now.

The central banks of U.S., Europe, U.K., Canada and Switzerland cut the interest rate by 50 percentage points yesterday; China’s central bank cut the rate by 27 percentage points. Central banks of South Korea, Taiwan and Hong Kong cut their interest rates today following the yesterday’s action.

It’s still unclear whether the yen’s strong bullish trend will have to change now or it’s just a corrective wave spurred by the rate cuts. Analysts note that the recent rally of the Japanese yen has been too rapid and some two to three weeks of correction on yen-based pairs would be accepted by the market participants.

USD/JPY rose from 99.15 to 101.28 as of 8:32 GMT today; this currency pair is still trading below the yesterday’s open level. EUR/JPY went up from 135.09 to 139.65 and is trading significantly above yesterday’s open level. GBP/JPY advanced from 171.18 to 175.70, still without paring yesterday’s drop.

If you have any questions, comments, or opinions regarding the Japanese Yen, feel free to post them using the commentary form below.

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