The past decade has seen notable movement in the Japanese Yen to Australian Dollar exchange rate, with the pairing surging from a 2007 low of 0.0093 to a 2009 high of 0.0177 in response to a sudden plummet in risk appetite in the wake of the 2008 market crash.
The Lehman Brother’s bankruptcy had a dramatic impact on financial markets the world over, with some of the world’s largest economies being driven into recession, resulting in wild swings in bonds, stocks, commodities and currencies.
As the Japanese Yen (JPY) is what’s known as a safe-haven currency, demand for the Yen surged from late 2008 onwards as investors ditched higher-risk assets in favour of their more stable counterparts.
Given that the Australian Dollar is both a higher risk and commodity correlated currency, this shift in sentiment benefited the JPY/AUD exchange rate.
If you’ve got an interest in the Japanese Yen or the Japanese Yen to Australian Dollar exchange rate there are several factors unique to JPY which you may want to be aware of.
The Bank of Japan (BoJ) occasionally engages in currency intervention, a process whereby the central banks sells the Yen in order to improve the competitiveness of Japanese exports. Although the BoJ doesn’t intervene as readily in the currency market as it once did, it does take action occasionally so the Yen can be subject to sudden shifts. Japan’s trade data is also worth paying attention to as the degree of the nation’s trade surplus/deficit can have a significant impact on the appeal of the Japanese Yen.
Although Japan has historically had comparatively high levels of debt, the fact that so much of the debt is domestically owned gives investors confidence in the Yen and helps the asset retain its status as a safe-haven currency.
What direction the JPY/AUD exchange rate takes over the next ten years depends on how a number of key issues are resolved, specifically the BoJ’s future fiscal policy, whether Japan’s disinflationary climate improves and the pace of policy normalisation in the US.