Key Factors Influencing Euro vs. the Japanese Yen

Key Factors Influencing Euro vs

Key Factors Influencing Euro vs. the Japanese Yen

The Japanese yen is one of the so-called major currencies, together with the U.S. dollar, the euro, the Swiss franc and the British pound. Its exchange rate is determined by variety if complex factors but one of the most important is the desire of the government in Tokyo to keep the exchange rate of the yen at relatively low levels against the euro and the U.S. dollar.

The euro vs. the yen is heavily influenced by the policy of Japan to maintain weak yen in order to boost exports, while the Bank of Japan is world famous for its anti-inflation measures and policy of near-zero interest rates. At present, the Bank of Japan utilises money market operations as a main instrument to influence the yen exchange rate against the other major currencies although it managed to refrain from using this powerful weapon for several years.

After the World War 2, the yen was pegged to the U.S. dollar but since the 1970s it enjoys a free float and is one of the most actively traded major currencies, in pairs against the euro and the U.S. dollar. During the past few decades, many analysts insisted that the yen is largely undervalued and its exchange rate is too low, partially due to government market interventions. This is a fact if you take a look at the history of the yen in the XX century but during the past decade the euro against the Japanese national currency shows that the yen gradually strengthens against the common European currency. The same applies to the dollar and in the last couple of years the world Forex traders witnessed new record levels of the yen against the euro and the greenback.

Unlike the U.S. dollar and the euro, the yen is not an official currency outside Japan and no other national currency is pegged to the yen. Nevertheless, the yen accounts for about 17% of all foreign currency exchange deals on the Forex market and many European and North American dealers and brokers are engaged in the Asian Forex yen trading.

Recently, the euro against the yen slipped but the big loser from the strong yen is the U.S. dollar. Last November, the yen reached 14-year record high against the greenback, concurrently with the euro, which at that time also made strong gains on the world financial markets. This continuous strengthening of the yen forced the Bank of Japan to intervene in the currency market after the dollar hit a fresh 15-year low level against the yen recently, intervening in the market for the first time since 2004.

The yen may look like an exotic currency to many people; however, the euro against the yen is of utmost importance for the price of such everyday activities like watching TV or jabbering via your mobile phone because Japan's exports of consumer goods depend heavily on the foreign exchange rates and weaker yen, in particular.

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