Yen's Surges to record high

The Japanese yen has hit its strongest level against the US dollar since the end of World War II.


The exchange rate reached 76.25 yen to the dollar during US trading hours y’day, though by Thursday afternoon in Asia it was back at 79.14 yen.

G7 finance ministers are to hold a conference call to discuss how to deal with global market volatility. The G7 is a group of the world's seven richest nations, including the US, Japan, the UK and China.  Analysts expect the G7 ministers to give Japan the go-ahead to intervene in currency markets to stabilise the yen.

With Japanese rates already at almost zero, the central bank cannot cut interest rates in order to weaken the yen against other major currencies, such as the dollar or euro where interest rates are also close to zero. The Bank of Japan faces a policy conundrum.

Analysts think the central bank may now go a step further and intervene directly in markets to stem the currency's rise by selling yen and buying dollars and other foreign currencies.

Repatriation

Japan's currency has been strengthening steeply since Japan was devastated by a magnitude 9 earthquake on Friday. A rise in the yen is seen as undesirable as it undermines the competitiveness of Japanese exporters.

Analysts have been blaming the strengthening of the yen on the repatriation of assets and foreign currency by Japanese insurance firms.

Other Japanese investors also own large holdings of foreign currency assets.

During periods of volatility - such as the 2008 financial crisis - investors responded by repatriating these assets, pushing up the yen's value, and thereby cementing its status as a haven currency.

Source :http://www.bbc.co.uk/news/business-12768098