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November 2011
From The Director

Greetings,
 
In the news of late, you've undoubtedly heard of Japan's most recent intervention in the currency market to the tune of approximately 8 billion JPY.   This month, we will focus on these complex economic measures, putting them into laymen's terms to make them a bit more comprehensible.

As always, we welcome your feedback. If you have any questions or would like additional information, please do not hesitate to contact your financial advisor. Should you not currently have an advisor at Select, please reply to this email and one of our senior consultants will contact you promptly.

Best Regards,

Imants Katlaps
Managing Director

Article

Living in Japan, it's quite unlikely that you haven't already heard the term 'yen intervention", but understanding what it means is another story entirely.  Here, we hope to clear up some of the confusion by answering some questions commonly asked by our clients, including what exactly yen intervention means.  But first, let's look at the changing value of the JPY since World War II, to get an idea of the significance of these recent measures.

  • Value of JPY over time

Post WWII, the value of the yen was fixed by a United States plan to stabilize prices in the Japanese economy.  This fixed value was 360 JPY per 1 USD, which held through 1971.  By that time, it was clear that the yen had become undervalued, as Japanese exports were selling for too little in international markets, and imports were costing the Japanese too much.  In an effort to devalue the USD, Japan agreed to a new fixed exchange rate of 308 JPY per 1 USD.  By 1973, this new fixed rate was also abandoned and Japan allowed their currency to float.  It was around this time that the Japanese government first began to intervene, however, despite intervention, the yen continued to climb in value until the oil crises of 1973 and 1979.  The yen remained weak in comparison to the dollar throughout the early 1980's, until the Plaza Accord was signed in 1985, which confirmed that...
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