The Value of the Japanese Yen and the South African Rand
The Japanese yen has been known as the “cruelly” high dollar currency for the past several years. However, the recent interest rate hike by the Federal Reserve, which is the central bank of the United States, has added a little more spice to the already volatile situation. As this event plays out over the coming two and a half months, there will be many speculators who will be watching the direction of the currency to determine whether the upward or downward trend continues. The following are some of the factors that could affect the status of the Japanese Yen in its relation with the U.S. Dollar:
The current exchange rate between the two currencies stands at a record low of approximately 4.2 percent currently. However, the exponential increase in the number of Chinese nationals traveling to Japan for tourism purposes has significantly increased the demand for the Japanese Yen and has caused the exchange rate to increase. In a matter of months, the fifteen jpy that was valued at a value of about six U.S. dollars on June last year will be worth at least sixty five U.S. dollars. If the trend continues, the value of the Japanese yen could become problematic, especially when it meets the dollar on top of the sixty five U.S. dollar mark.
The U.S. government’s decision to hike the interest rates will definitely have a negative impact on the Japanese yen and will force the currency to decrease in value. For a long time, many economic analysts have predicted that a rise in U.S. interest rates would negatively affect the Japanese economy. However, the unexpected announcement has caused a surge in investors into the country. According to media reports, many foreigners have rushed to the country for vacation and as a result the price of the Japanese yen has dropped significantly. The rise in rand exchange rate is expected to continue as more people flock to Japan.
The South African dollar is considered a very strong alternative to the Japanese yen as it is strongly linked with the U.S. dollar. However, a similar trend is observed between the Swiss franc and the South African rand. The Swiss franc has strengthened considerably against the South African rand and this trend has continued and seems to be increasing in strength. The Swiss government recently announced that it would offer a one-off swap of its franc for that of the Japanese yen and this has increased the demand for the Swiss franc.
A rise in demand for the Swiss franc would mean that the Japanese yen will weaken against the South African dollar. Many traders are speculating whether the announcement by the Swiss government will affect the Bank of Japan’s interest rate decision. The Bank of Japan has been increasing its level of interest rates recently and many analysts have speculated that this might be the beginning of a more aggressive tightening cycle in Japan. If the Reserve Bank of South Africa continues with its current policy of reducing interest rates then the Swiss franc could be more vulnerable to a strengthening South African dollar and hence more likely to lose value against the South Africanrand. This is a possible result of the recent weakening of the euro against the dollar.
The past few weeks there have been several large changes to the Forex market and most traders are waiting for the next big shift. In the last two weeks, the Japanese yen has strengthened by about 0.2% on average. However, many traders remain unsure whether this can be a sustainable move as the level of the currency is still relatively low compared with the pre-crisis highs. There have been reports that suggest the Japanese government may be preparing for a stimulus package and although this would certainly help, it is not clear whether this would be enough to reverse the negative economic effects of the global recession.
The Japanese economy is facing many difficult times and many of these problems are related to deflation. Deflation means that prices of goods have fallen in price, but consumers continue to hold onto their purchases as they are unsure of the inflation rate forecast. When a country is in a severe economic crisis this has a detrimental effect on the value of the national currency. In the last few years the South African dollar has lost a lot of value against the Japanese Yen. It seems that this is a similar situation that is being experienced by Japan. If the Japanese economy were to weaken further, the value of their dollar would continue to depreciate against the South African Rand.
As with all market fluctuations, no one can predict exactly when a change will take place. For the time being it is probably best to stick with the current values of the Japanese Yen and South African Rand. The recent changes in the values of both these currencies are quite dramatic and if you are interested in investing, now is definitely the time to purchase. The future could bring much more changes to the market.