Japanese yen reaches 14 year high against dollar

By Pete Southern in LiveWire Economics Blog | December 3, 2009 14:55 |

The US dollar continues to find major low points to reach against major foreign currencies and other speculative investments. Gold is now over $1,200 with some top analysts calling for a quick move through the $2,000 level in the near future. Oil remains near $80.

The Euro is primed to move even higher from its near-term position near $1.51. However, it is the dollar’s recent fall below the 87 yen level that has now attracted much of the attention in the foreign currency marketplace.

The dollar broke through key near-term and long-term support in the 87-88 range in the late November. The move that sent the dollar below 86 yen, briefly, gave the greenback its lowest price position relative the yen in 14 years.

The break came on the heels of rhetoric from leaders of the Japanese Central Bank who closed their recent policy meeting on November 25th with comments hinting on potential intervention to keep currency rates within reason.

Anytime there are major currency shifts that can affect the economic and business environment of the country or countries involved, bank leaders begin to consider whether it is necessary to intervene rather than to sit back and let speculators drive currency values. The question then becomes, is the commentary just rhetoric used to encourage traders to make a move on their own or will it ultimately be backed with action.

Interestingly, when the dollar was reaching new heights (ultimately topping 125 yen) against the yen in the first half of 2007, the Japanese Central Bank, under pressure from the IMF and other bank leaders, finally took action and began a modest effort to help firm up the yen. Up to a point, Japanese leaders were encouraging a lower yen as a catalyst for the budding Japanese export industry.

Many currency analysts and economists point out that in the long run, government intervention in currency markets is not ideal and rarely affects the flow of price movement or direction anyway. Typically, central banks only get involved when desperate action is need to either stem excessive gains or losses in currency value. Most global bank leaders agree that less volatile price movement is better for global business.

Regardless of whether the Japanese Central Bank does decide to intervene to help cut off excessive gains against the dollar, it is the economies of both countries and subsequent monetary policies that will have the greatest long-term impact. In the short run, the talk has at least given the dollar a short-term boost back over 87 yen.

Neil Kokemuller
9:28 AM EST
Wednesday, December 2, 2009

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University. He is also in house stock market commentator at Live Charts UK, where you can find real time charts and share prices.

Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.

Pete Southern About Pete Southern
Pete Southern is an active trader, chartist and writer for market blogs. He is currently technical analysis contributor and admin at this here blog.

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