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Home » Online Forex Trading Blog » US Dollar Breaks 100 Yen Barrier

US Dollar Breaks 100 Yen Barrier

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On improving employment news and other economic data, the USD crashed through the 100 yen milestone and appears headed to 102 in the near term. The dollar touched 101.74 yen, a 4.5 year high.

The euro also posted big gains against the yen settling at a 3.5 year high of 132.26 yen. Citing options set at 102 yen, many analysts set the bar at USD-yen 105 in the relatively near future.

The euro lost ground to the dollar settling at $1.2993, below the $1.30 threshold that has been common ground for the past few weeks. Against a basket of currencies, the USD reached a two-week high of 83.098. Meanwhile, the Australia dollar fell below parity with the USD. The dollar reached a six-week high against the Swiss franc.

The decline of the yen through aggressive quantitative easing has been criticized by many finance leaders and is sure to be discussed at this weekend’s G-7 meeting outside London. The meeting between finance ministers from the US, Germany, Japan, Britain, Italy, France and Canada will insist that the Bank of Japan’s easing be accompanied by growth. The balance between growth and austerity will top the menu at the G-7 but the declining yen will be in the mix.

US Treasury’s Lew Patient

Interviewed by Steve Leasman of CNBC, US Treasury Secretary Jack Lew seemed patient about the BoJ’s policy. Lew appeared comfortable with the easing as long as the end result is growth. He also indicated that the US could not lift the global economy without assistance.

“Japan has growth issues for a long period of time that we have encouraged Japan to address. So as long as they stay within those bounds of those international agreements I think growth is an important priority. I’m just going to refer back to the ground rules and the fact that we’ve made clear that we’ll keep an eye on that,” said Lew.

The Secretary added that he feels certain European Union nations are poised to grow. “For a global recovery, it cannot be led by the United States alone. There are countries in Europe that have more fiscal space in Europe to create a bit more economic demand and more economic growth.”

The yen downturn is caused by massive easing and by the fact that investors are shying away from the country’s bonds. Many Japanese investors have pulled their money from the bonds and have invested them in foreign safe havens. BOJ governor, Haruhiko Kuroda, insists that the bank is not targeting currency rates in order to gain a trade advantage. “The Bank of Japan isn’t targeting currency rates, which are determined by the markets.”

Shifting Dynamic in Europe

This G-7 is being held ahead of time at the request of Germany. European leaders are attempting to strike a balance between aggressive growth policies and austerity. Germany has been adverse to growth in the past and hopes are that this meeting will announce a shift in policy.

While it is clear that Japan is attempting to spur its economy by presenting the most favorable export market possible, policy in the euro zone is not as clear. What is clear is that Lew supports a certain amount of easing as long as it creates growth.

Last week, the European Central Bank (ECB) cut interest rates in hopes of spurring small business investment and growth. Britain, whose finance minister George Osborne will head the G-7 meeting, has had some success of late with its easing policy and other innovative small business lending programs. Osborne and the UK are bullish on growth.

He told Reuters; “(This is) an opportunity to consider what more monetary activism can do to support the recovery, while ensuring medium-term inflation expectations remain anchored.” At last month’s IMF meeting, Germany came under fire for not offering more backing for the euro zone’s new banking union. Since that time, Chancellor Merkel has seemed to ease her resistance but finance minister Wolfgang Schauble has taken the rigid position of the past.

The new banking union is poised to create a single bank supervisor next year. Of equal importance is the second stage of the union, the development of a “resolution” agency. This agency would be charged to close failed banks and prevent “too big to fail” institutions. This resolution wing has been a bone of contention between the participating governments.

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About the Author -

Hiland is a professional writer with extensive entrepreneurial experience. He is a graduate of St. George’s School Newport, RI and the State University of New York at Albany where he majored in history. He has been active in the real estate business for 30 years and has founded and sold several businesses. Hiland currently writes for several financial sites and is a published author of the novel The Last Parade. He has recently completed a manuscript for a children’s book entitled Sami and The Minnow Man.

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