China’s new policy is to allow the currency to be traded on the open markets.
Don’t expect a big rise in the yuan this year, as China is likely to opt for a gradual appreciation of its currency over time. The Chinese currency rose 4.3% against the dollar in 2011, and is up about 23% since China first ended its formal currency peg to the U.S. currency in July 2005.
Other analysts agree that China’s currency will continue to appreciate, even amid the deteriorating global export outlook, with internal Chinese politics also playing a role.
From China, we can sail right over to one of their major trading parters, Japan, home to mysterious culture and currency which has a lot of very unique features. The apparent disconnect between the yen and Japan’s economic situation could easily continue, keeping the yen buoyant this year.
Last year, the yen was the best performing among major currencies, rising more than 5% against the dollar and 8% against the euro . It’s rallied about 35% against the greenback since 2007 when the U.S. dollar bought more than ¥120
One factor helping support the yen is a shift in the global carry trade, or what currencies investors borrow to fund higher-yielding investments.
Before the 2007-2008 financial crisis, Japan’s near-zero interest rates had encouraged a multi-year carry trade of borrowing against the yen to buy higher-yielding assets such as stocks. With the Federal Reserve driving its benchmark interest rate to near 0% starting in late 2008, the dollar has taken over some of that role.
Three countries , three cultures , all with differing outlooks and views on their currency and the markets.
