Higher Yen Hits Japan's Economy
Japan's yen is one of the few Asian currencies that are struggling. After its economy contracted 2.3% during the fourth quarter of last year, the Bank of Japan announced a new 10 trillion yen stimulus package on February 14th. The move led to a sharp depreciation in the yen across the board, including against the U.S. Dollar, Swiss franc, British pound and others.
Japan has also been hit by a record trade deficit, which has led to concerns that the strong yen may be hurting its export-driven economy. The deficit hit 1.48 trillion yen ($19 billion) and exports dropped 9.3% year over year as energy imports increased. While the Bank of Japan (BOJ) has reined in the yen a bit, the recovery pace is still likely to be slow by many accounts. (For related reading, see Get To Know The Major Central Banks.)
Standard & Poor's has also issued a warning that it may lower the country's credit rating if the economy doesn't grow as quickly as expected or if its public debt gets out of control. Most recently, the ratings agency reaffirmed the country's AA-rating with a negative outlook, saying that tax hikes alone wouldn't solve its structural problems.
Swiss Continue to Defend the Franc
The recent strength in the euro has calmed the nerves of many in the Swiss National Bank (SNB). But new signs of trouble from Greece and Portugal could put the bank's resolve to the test when it comes to defending its 1.20 price floor. With the market viewing it as a safe-haven currency, it's considered one of the few places to put money away safely.
But while the euro has been relatively calm, the franc surged to a three month high against the U.S. dollar and British pound (cable) in recent weeks. The franc has traded roughly at the 1.20 mark with the euro, but traders have taken the opportunity to get into the safe-haven currency through these other pairs in an apparent flight to safety.
These trends have also been affecting the Swiss economy in many ways. While the currency's strength has hurt its business exports, the move higher has helped consumer prices drop the most in two years. These issues appear under control now, but any escalation may lead to a further slowdown in the Swiss economy over the coming months. (For related reading, see The Swiss Franc: What Every Forex Trader Needs To Know.)
Britain's Economy Sends Mixed Signals
Just as Britain was showing renewed signs of strength, the country reported negative growth during the fourth quarter of last year. Consumer spending and exports proved higher, but reduced investment from businesses lowered the overall figure. The slight downward revision showed a 0.2% drop compared to last quarter, but a 0.7% improvement year-over-year.
The Bank of England (BOE) recently announced a new 50 billion pound stimulus in early February, which should help the country barely avoid a recession and improve throughout the year. And Britain's Paul Fisher noted in an interview that policymakers were keeping an open mind to the possibility of more quantitative easing.
In the end, these developments have had a relatively muted effect on the cable. Over the past month, the pair is trading up 7.34% against the trouble Japanese yen, roughly even with the euro and down about 1.03% versus the U.S. dollar.
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