The yen jumped to a record high against the dollar on Friday as the prospect of further quantitative easing in the US and a lack of resolution to the crisis gripping the eurozone left the Japanese currency as the last mainstream bastion of stability.
The yen soared as much as 1.4 per cent to a fresh record of Y75.78 per dollar on the EBS electronic trading platform, according to Reuters, surpassing the previous high of Y75.93 touched in mid-August. Japan’s currency has rallied 6.5 per cent since the start of the year. It was trading at Y76.12 at about midday in New York.
The move higher, which follows a period of relative stability, will put further pressure on the Japanese authorities to intervene in order to weaken the currency, which is driving companies to move their operations overseas.
On Friday, Japan’s cabinet announced Y2,000bn ($26bn) of subsidies to encourage companies to keep factories and jobs in the country. “We want to help companies overcome the surging yen,” Jun Azumi, finance minister, told reporters.
The yen’s surge came as the dollar tumbled amid expectations of further quantitative easing from the US Federal Reserve.
Daniel Tarullo, one of the five governors on the Fed board, said on Thursday the central bank should consider a “large-scale” programme of purchases of mortgage-backed securities to support the housing market directly.
The dollar dropped 0.8 per cent against a basket of the world’s leading currencies to the lowest in more than a month. Bank of New York Mellon, one of the leading currency dealers, has seen outflows of funds from the US dollar since September 30, when Ben Bernanke, Fed chairman, obliquely raised the prospect of a third round of quantitative easing, or “QE3”.
“Our suspicion is that this theme of QE3 and US dollar weakness will continue to emerge as the surprise story for the remainder of this year,” said Simon Derrick, head of foreign exchange strategy at BNY Mellon.
That meant the yen had become the only large currency that investors were still prepared to bet on, analysts said.
Beyond the prospect of quantitative easing in the US, the euro has been hobbled by concerns about a Greek default, the Swiss central bank has pledged unlimited intervention to weaken the franc and gold has lost much of its lustre amid sharp price falls and high volatility.
Analysts said the only measure likely to weaken the yen was significant monetary policy easing by the country’s central bank.
“In order to get independent yen weakness, we would probably require the Bank of Japan to move towards quantitative easing. However, this seems less likely,” said strategists at BNP Paribas.
In a statement that appeared to put pressure on the Bank of Japan to act, the Japanese government on Friday said the central bank was expected to support the government’s efforts by “underpinning the economy with appropriate and decisive monetary policy management”, according to Kyodo, the Japanese news agency.
Get alerts on Central banks when a new story is published