Japanese Yen Breakthrough: 100 Threshold Mark to the US Dollar

For the first time in four years, the Japanese Yen breached the 100 threshold mark to the US dollar. This momentous event occurred on Thursday in New York. By Friday, the yen was trading at ¥100.8 to a $1.00 in Asia. The yen has been close to the mark in the past few days but has been unable to breach the level until Thursday.

Investors have been on their toes, brimming with expectation for a yen breakthrough ever since the bond buying program was launched by the Bank of Japan in early April.

Out of a stall

The Japanese yen has been stalled for a month. And then on Thursday during the afternoon trading in New York it reached ¥100.79, a reflection of the frantic selling of the yen and buying of the dollar. The fall continued until Friday morning in the Japanese capital up to ¥100.85 against the US dollar.

A boost for exporters and the equity market

Last year, Japan implemented a number of aggressive initiatives in the hopes of promoting economic growth. The Japanese lawmakers have put in place measures to remedy the sluggish economy of the country, one of which is to target a 2% inflation rate.

Since November 2012, the Japanese currency had fallen almost 25% against the American dollar in the wake of the changes made. This in turn helped exporters boost their profits and triggered a rise in the stock market. And on Friday, the Nikkei 225 index increased almost 3%.

Yen helpers

One of the factors that analysts say have helped the yen is data from the US, which showed that unemployment insurance applications had fallen to five-year record low. This set of data prompted an optimistic point of view with regard to the economic recovery of the United States. Less applications for employment insurance means better job prospects. And analysts say that investors ditched the yen and other safe haven assets for the US dollar.

Two decades of deflation

Japan has been fighting falling prices or deflation for most of 20 years. Businesses and the purchasing public are putting off buying items available in the market so that they can get the cheapest deal possible. In early 2013, the Bank of Japan has declared that it would buy long-term bonds and double Japan’s money supply in order to keep interests low. When more people have cash on hand, consumer demand increases and consumer prices will eventually go up. The measures that have been implemented have all contributed to the weakening of the yen.

Impact is being felt

In the past few days, big Japanese firms are already feeling the impact of the weakening yen. Japanese exporters such as Sony and Japan are already profiting from the recent developments. And optimism is high that the yen will remain weak and forecasts are saying that the current financial year is yet to see a further increase in profits.

However, experts are saying that there are risks involved, one of which is that fear of further weakening of the yen will lead investors to choose to invest outside of Japan.

Photo Credit: ¥10,000 Note