The Japanese yen has remained relatively stable against the US dollar for a while now, albeit close to forty-year highs. The USD/JPY pair has hovered below 163.00 since the end of last month, and the yen carry-trade continues to be popular. This is where investors borrow yen cheaply, as Japan’s key interest rate is 1.0%, and use the funds to invest in higher-yielding assets.
Source: TN Trader
Bear in mind that the US Fed Funds rate is currently 3.50-3.75%, which represents a yield premium of over 250 basis points. The Japanese authorities are unhappy about the yen’s weakness, particularly as the country has to import pretty much all its energy.
Japan’s finance minister, Satsuki Katayama, has warned on numerous occasions that the Ministry of Finance stands ready to intervene to support the yen. But the abject failure of their last intervention in April may be holding them back. Yet traders should remain on guard as a sudden intervention has dramatic effects which ripple out over many markets, not just Forex.
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