Japanese leaders recently intervened in the Forex market in order to weaken the yen, which has been strengthening lately. However, efforts to keep the yen lower have been running into trouble as China increases its investment in Japanese notes and bonds.
Normally, China doesn’t present much of a problem for Japan. China holds a large number of currency reserves denominated in US dollars, and, until quite recently, Chinese efforts at diversification have focused on the euro. However, with eurozone problems affecting the stability of the euro, it appears that Japanese denominated investments are looking more attractive to China.
And, as China invests in Japanese notes and bonds, it supports the yen in Forex trading. This, of course, is an undesirable development for Japanese leaders. Japan prefers a weak yen — it gives Japan an advantage when exporting goods. However, Japanese leaders have been struggling against yen strength for some time now. Even the approval of a massive bond sale was unable to undermine the yen for very long.
Today, yen is stronger against the euro and the pound, but weaker against the US dollar. The weakness against the dollar is probably desirable, and the strength against the euro is likely a result of China shifting some of its efforts away from euro assets and into yen assets.
At 14:03 GMT USD/JPY is higher, at 78.1665, up from the open at 78.0520. EUR/JPY is down to 107.2755 from the open at 107.8350, and GBP/JPY is lower at 125.0220, down from 125.1650.
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