Research Team at Wells Fargo, suggests that with an unexpected move to negative interest rates, a bigger-than-expected decline in fourth quarter GDP and pronounced financial market instability, the Japanese economy has once again been a global focus in recent weeks. Key Quotes “Another factor attracting attention in Japan: the yen. Owing to its safe haven and funding currency status, shaky global financial markets have a tendency to put a bid on this currency resulting in a challenging scenario for monetary policy makers at the Bank of Japan (BoJ). The immediate reaction to the announcement of negative deposit rates was a 1.9 percent drop in the value of the yen, but in subsequent trading, the Japanese currency has appreciated versus the greenback, taking the exchange rate to levels last seen prior to the BoJ’s announcement of increased asset purchases back in October 2014. While not an explicitly stated goal of policymakers, a weaker yen helps to promote a number of economic policy goals that Abenomics has thus far struggled to achieve. Specifically, a weaker yen could boost exports and thereby broader GDP growth as well as nudge inflation higher. During some past periods of yen strength, the Japanese Ministry of Finance (MoF) has directed the BoJ to conduct currency intervention to offset yen strength by buying large sums of U.S. dollars. We consider the likelihood of new currency interventions in the current climate. We think that the prospect for new interventions at this time is rather low, but not impossible. Ultimately, the viability of conducting such an intervention at a time when other central banks are similarly trying to ease may not be feasible and the benefits for the currency are fleeting at best. It is not altogether clear that this short-term fix is the most appropriate medicine for what ails Japan’s economy at present.” For more information, read our latest forex news.