The Japanese yen continued to grow against the major currencies today as the early stock market trading shows no sign of the optimism that was expected from the Freddie Mac and Fannie Mae bailout.
Yen is the preferred currency when the stock sell-offs occur and the accompanying carry trades close out. The Japanese currency traded near the two-year highs against the Australian and New Zealand dollars — currencies know for their carry trade value.
Traders are still concerned over the U.S. financial market. While the saving of the U.S. mortgage corporations by the government is almost a certain fact, market participants believe that it wont occur before the November Presidential elections.
Another factor that is positively affecting the yen is the extremely low interest rate set by the Bank of Japan. Of course, low interest rate isnt itself something good for the currency, but the Japanese rate is so low at 0.5 percent that it has only one way to go — up. Even if the rate hike wont happen before 2009, it still sets the positive trend for the currency based on the rate expectations.
USD/JPY dropped from 108.16 to 107.79 as of 7:59 GMT today. EUR/JPY declined from 152.70 to 152.15, while GBP/JPY fell from 190.11 to 189.48. The carry trade favorites — AUD/JPY and NZD/JPY — lost 107 and 24 pips so far.
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