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Yen: Why is the yen rising? It might seem that with the U.S. dollar plumbing the zero interest rate depths, pounds printed like decorated toilet paper by the Bank of England, the euro overvalued and the Chinese renminbi inaccessible, the yen is the world’s closest thing to a safe haven.
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But Japan"s ultra-low interest rates are down there with the dollar"s. Japan"s fiscal deficit, at almost 8 percent of GDP, is not so far behind the US one. And Japan"s government debt, approaching twice GDP, is twice as gross as US debt. Worst of all, Japan is the country where policy has sought for years to banish deflation – and isn’t winning. Consumer prices were 2.2 per cent lower in September than a year earlier. And a huge debt burden makes deflation the last thing Japan needs: if prices and wages fall, the debt is still more of a problem.
And so finding a rational explanation for the current rise in the yen against all currencies, but to a fourteen-year-high against the ultra-weak US dollar, is not easy. A large part of it would seem to be that the dollar has taken over the yen"s old role as favourite funding currency for speculators.
The yen went still higher on Thursday as Dubai-scared investors retreated to "safe haven currencies." Even the US dollar rose – except against the yen and Swiss franc, which was probably supported by the national central bank.
Japanese exporters and retailers are crying out in anguish. The authorities have responded with words. Hirohisa Fujii, the finance minister, said "appropriate measures" might be taken to deal with "extreme" currency moves.
Words could turn to deeds: the Bank of Japan, perhaps in concert with other central banks, buying US dollars and selling yen. Such intervention would be almost certain if the yen, currently at 86.5 to the US dollar, moved past the level of 85 per dollar.
Intervention would be the right thing to do. The yen"s rise is one among many perverse moves in today"s markets. Japan can"t afford not to counter it.