After the currency of Japan (yen) had weakened to its lowest level in seven years against the US dollar on Tuesday (11/11), the currency rebounded today (12/11) as speculation spread that Japan’s Prime Minister Shinzo Abe is not considering to dissolve parliament and to postpone a planned sales-tax increase. Japan’s currency had gained 0.4 percent to 115.31 per US dollar at 9:02 am London time according to Bloomberg data (yesterday it had touched a seven-year low at 116.10 per US dollar).
Recently, the yen has lost considerable value as the central bank of Japan introduced another round of quantitative easing. The institution will purchase about USD $725 billion worth of government bonds per year. Furthermore, the yen had weakened amid reports of a possible delay to raise the sales-tax until 2017. And, contrary to earlier reports, Chief Cabinet Secretary Yoshihide Suga stated today that Abe is not preparing for an early election (that supposedly would be held in December 2014).
Since 2012, the world’s third-largest economy has engaged in an aggressive monetary policy (‘Abenomics’) in an attempt to stimulate inflation, boost economic expansion, and thus effectively putting an end to a prolonged period of recession. This aggressive monetary policy aims to weaken the yen in order to make Japan’s exports products more attractive.
The depreciating trend of the yen runs parallel to the recent rally of the US dollar (after the US Federal Reserve ended the quantitative easing program and US interest rates are expected to rise from the second quarter of 2015). Economists of the Citigroup believe that the yen can further depreciate to 120 yen per US dollar before the year-end.
Meanwhile, Japanese consumer confidence reached the lowest level in six months due to the higher sales-tax that was implemented in April 2014, while the September current account surplus rose to 963 billion yen (USD $9.7 billion), up 61.9 percent year-on-year (considerably larger than analysts’ forecasts). However, in recent years Japan’s monthly current account balance has fallen due to the country’s increasing reliance on expensive oil imports to make up for offline nuclear reactors.