The Rising Japanese Yen Against the Dollar Will Backfire

Concerns have rised for the Japanese government after recording a rising yen which is reaching a 15 year high against the dollar, with the yields of Japanese government bonds performing in margins of less than 1% in a seven years low, hindering efforts to stabilize the “fragile ” economic recovery in Japan. The dollar found itself in an eight months low against the Japanese Yen at rates near 85.32 therefore flirting with dangerously low currency exchange levels of 15 years.

Most market players believe that, despite the concerns, Tokyo authorities will not intervene in the currency market, at least until the dollar falls to a 15 years low against the Japanese currency. The Japanese Finance Minister Yoshihiko Noda said that authorities are closely monitoring the progress of the exchange rate.

Officials of the Japanese government are worried whether the strength of the yen is undermining the export business, thanks to which the economy still managed to emerge from the recession, and intensify deflationary pressure after 16 consecutive months of decline in consumer prices.

At the same time, analysts polled by Reuters discern little room for further rise of the yen against the dollar, but the drift will take place at a slower pace due to the pressure on the dollar. The analysts expect the US Dollar – Japanese Yen to rise to 86.8 in one month, to 92 yen in six months and 97 Yen in a year from now.

They also consider that it will soon reverse the rally of the euro against the dollar as the government austerity measures and sluggish growth are haunting the single currency of the European Union. The analysts expect the euro at 1.20 against the dollar over the next twelve months, close to a four-year low (less than 1.19) and having moved away from the high quarter of Tuesday which marked 1.32.
Compared with the previous survey, analysts have revised their estimates upward for the Euro first year at 1.30 against the dollar in a month and to 1.25 in three months from now. As for the pound, they are providing retreat at a slower pace in the 1.57 mark against the dollar in a month and $1.50 within the next twelve months.