JPY Daily News

Yen Continues to Fly High on its Rivals

The JPY's huge gains recently over a basket of major currencies have raised the speculation that the Bank of Japan may cut interest rates. There is growing concern that the world's second-largest economy may suffer a prolonged recession. The Bank of Japan didn't take part in this month's joint rate cut with its counterparts from North America and Europe. The BOJ has very little room to influence rates as current rates stand at 0.50%. Japan's borrowing costs are already very low. Now it may have little choice in coming months as plunging stocks and a surging Yen take their toll on an already weakening Japanese economy. According to several analysts, the central bank may likely lower the key rate to 0.25% from 0.5% by year-end.

This rate cut by the Bank of Japan seems to be unavoidable, with growing concerns about Japan's financial system and economy, while the Yen advances and stocks continue to fall. The Nikkei 225 Stock Average tumbled 25% this month, and the JPY has climbed 8.7% against the Dollar and 19% versus the EUR. There is a high possibility of a rate cut in Japan, after the government this week acknowledged that Japan has probably entered its first recession in six years after the economy shrank in the second quarter of this year. Despite this fact, likelihood that the Bank of Japan will cut rates is still slim, given that there is little room for policy maneuvering. However, we cannot rule out the possibility the bank will be forced to cut jointly with other central banks should global market turbulence intensify.

Current Time: 05/27 00:30 GMT

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