In the United States, the yen dropped to its lowest value in over four years, prompting a wave of brokers to unload their shares in gold and oil. By day’s end, however, the market recovered and both the S&P 500 the Dow Jones closed out at record highs. So why the massive hit to the yen?
Japanese investment firms have been gobbling up assets overseas, so the yen’s slide had more of an impact across global markets than it may have had in the past, economists claim.
The U.S. dollar, on the other hand, has remained sturdy due to the country’s recent rise in employment. That consistency puts pressure on firms invested in other currencies, who may no longer be able to afford the cost of U.S. goods and services.
"Despite signs of slower U.S. growth here in the second quarter, the U.S. labor market continues to improve,” says Marc Chandler, head of global currency strategy for Brown Brothers Harriman, a financial institution that consult with individuals and businesses on investment opportunities. “Japanese investors were already selling the yen on expectations that [others] would sell as the Bank of Japan's stimulus measures displaced them from the local bond market.”
According to the Ministry of Finance, Japanese firms invested $3.1 billion, or 309.9 billion yen, in overseas bonds the week leading up to May 3rd.
The Japanese currency fell to 101.98 yen per dollar, the lowest since 2008, and with the passing of the 100 benchmark, economists expect the yen to fall further. Some are predicting the dollar to rise to 105 yen this summer, and peak as high as 110 by the end of the fiscal year.
As the U.S. undergoes rapid employment expansion, foreign money is expected to come pouring in. On Friday, the S&P 500 closed up 7.03 points, to 1,633.70, while the Dow Jones rose 35.87 points, to 15,118.49 – both record highs.
Wow – up, down, up down. To call the stock market ‘unpredictable’ would be an understatement.
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