Job Discussion Forums

[MrCAPiTUL]

If you are thinking about saving money to leave the country with, do not consider China. The yuan will go a long way for you whilst in China, but it will not go far at all outside of the People's Republic.

[J.]

exchange rate for the Canada dollar and it's 115.9 yen!!! I hadn't checked for awhile but seems it's lost about 11-15 percent in only the last month or two. Round and round and down it goes; where it stops nobody knows.

[Hoser]

[J.]

See for yourself and weeping may be more appropriate than beeping.

Canadian Dollar Hits 30 Year High:

http://www.cbc.ca/money/story/2007/05/25/loonie.html

[Dipso]

The yen seems to have slipped even further this week. I can't quite believe that it's pretty much 250 yen to the British pound.

*leaves Japan*

Friday, June 22, 2007
http://www.golloyds.com/en/today/index.php

US Dollar (USD) 124.90
Pound Sterling (GBP) 249.48
Canadian Dollar (CAD) 116.95
Australian Dollar (AUD) 106.87
New Zealand Dollar (NZD) 96.50
Euro (EUR) 167.41
Swiss Franc (CHF) 100.72
Hong Kong Dollar (HKD) 16.27
Singapore Dollar (SGD) 81.47
Swedish Krona (SEK) 18.38

[wintersweet]

Hmm, I guess it's a good time to return as a tourist.

[Chris21]

I came across this Reuters report in the Globe & Mail (Canadian newspaper)... it might provide some comfort to those hoping the yen turns around.

JAPAN

Building inflationary pressures globally should provide room for the Bank of Japan to raise its benchmark interest rate, which in turn would gradually reduce the yen carry trade and help redress global imbalances, he said.

"Inflation around the world will allow Japan to raise nominal rates," he said without giving a timeframe. Nearly half the economists in a Reuters poll on Tuesday forecast the BOJ would raise rates from 0.50 percent by August but uncertainty persists over BOJ timing.

Higher Japanese rates will provide room for the Japanese yen to appreciate in value, Johnson said. He was not concerned it could also bring a turbulent unwinding of the carry trade, financed by very cheap Japanese money, noting that the yen has fluctuated broadly without major fallout in markets.

"We think that the global economy can withstand fluctuations. We are energized by the fact," Johnson said.

[sidjameson]

Chris the scary thing is is that information is already factored into the value of the yen. Markets reflect what speculators predict what will happen NOT what is happening. Without that expectation the yen would be even weaker than it is now.

And the simple truth is this. Interest rates in Japan have to rise FASTER than other countries in order for the yen to rise.

Japan is thinking of a rise in rates soon, but then again so is every other country.

[Chris21]

But if the inflation in the other countries is worse than Japan's, that will have a negative effect on their currencies (while it is very unlikely that Japan will have a serious inflation problem anytime soon).

Anyway, what the person quoted in the article was talking about were carry trades... when investors borrow in one country with low rates, and then invest in bonds in another country with higher rates (i.e. taking loans from a Japanese bank at 1% to buy New Zealand government bonds at 5%). The Japanese investors who do this are more likely to pull out of foreign markets and bring their money back to Japan when the interest rate gap between Japan and other countries narrows... or the inflation problem abroad becomes serious enough to send countries into recession. I was reading another article a few days which said that the yen has traditionally appreciated quickly because of a herd mentality... when investors start pulling out, a lot of them follow suit. They cited the autumn of '98 when apparently the yen gained 10% in a few days. Anyway, it's something to keep an eye on (for what it's worth, the yen did jump yesterday, and has climbed a bit from recent lows).

[Chris21]

[flyingkiwi]

If anyone out there is game enough:

Can you please explain in simple terms what factors make currency rates move up and down and what role interest rates and inflation plays in this??

Or direct me to a site that explains all this in relatively simple terms.

[Chris21]

Basically, currencies move up or down just like anything else would... it's all because of supply and demand. If there is a strong demand for a currency or a limited supply, then the currency will go up. If there is little demand or too much supply, the currency will go down. In Canada's case, there have been a number of factors that have been driving the Canadian dollar up...

1) commodities prices. Canada is still a resource-based country, and because economies are booming all over the world (particularily resource-challenged China and India), commodities prices have been very srong. These countries purchase resources from Canadian companies, and have to pay in Canadian dollars (boosting demand).

2) mergers. A number of Canadian companies have been taken over by larger international ones. I believe a couple giant mining companies, a couple of forestry ones, and a slew of smaller oil companies have all been sold. In order to get a hold of these companies, the larger foreign companies have had to use Canadian dollars. It adds up when it's a $2 billion take-over (and there have been a half-dozen so far). (boosting demand)

3) interest rates. The gap between the US and the Canadian interest rates set by their respective central banks has been narrowing. Tradionally, the US has offered a better rate, which attracts more investors (who need to buy US dollars to pick up US bonds). However, with the gap narrowing, fewer money has gone into US bonds, and more has gone into Canadian bonds. (boosting demand)

4) sizzling economy. The Canadian economy has been very strong, and the government has managed spending well. This is attractive for investors who want to buy stock in Canadian companies. (boosting demand)

5) relative value of other currencies. Countries like the US, Japan, and China have all kept their currency lower than it should be, in order to help manufacturing companies. Relatively speaking, this makes the Canadian dollar stronger. (boosting demand)

6) responsible fiscal policy. When a country prints money as fast as they can, it floods the market with a currency and lowers the value. Most developed nations are fairly responsible about keeping their money supply limited. There are past examples of countries printing too much money and causing their currency to become worthless (i.e. post WW1 Germany).

7) thousands of other factors...

I'm just an economics novice, so please forgive me if I've made mistakes.

[flyingkiwi]

Thanks a lot Chris 21. I wasn't expecting such a great reply. Cheers

One thing I don't get though is that Japan is not exactly in a depression, so why is it's currency weak against ALL other currencies? Isn't anyone interested in investing in Japanese companies at the moment?

[Chris21]

I think the biggest factor affecting the yen lately has been the Japanese government's desire to keep the yen low (by stockpiling foreign currencies and offering very low interest rates), so Sony, Toyota, Panasonic, JVC, Honda, Nintendo, and all of the other giant Japanese manufacturing companies can make their products cheaper for foreign customers. Japan actually has one of the largest reserves of US dollars in the world (I think only Russia and China have more), so if the Japanese government really wanted to strengthen the yen, they could just start selling their US dollars. They prefer the weaker yen, and it's caused some friction with other governments (there was some griping at the latest G8 meetings). However, if other market forces take hold... like inflation or a cooling down of the global economy, it might not matter what the Japanese government does... the yen could start appreciating (which would ironically probably be bad for Japan).

[Chris21]

Could the yen be swinging back in the other direction? There have been some nice gains over the last two days... hope it's not short-lived.