The Yen has risen to an 18-month high against the US Dollar and stands at about 108.7 Yen, having started 2016 worth 120.6. The Yen appreciated by 6.3% during Q1 2016, but has rocketed in value since publication of the minutes of the last meeting of the federal reserve. The minutes cast doubt on the likelihood of an interest increase at their April meeting (which ought to have surprised nobody) which led to downward pressure on major stock markets and a surge in the value of the Yen.

The Japanese are not best pleased to see a strengthening Yen. It means that profits generated abroad, when repatriated, are reduced, but that imports to Japan (largely priced in Dollars) are cheaper. The fact that imports are cheaper makes it harder for the Bank of Japan to achieve its goal of ending the decades-long cycle of deflation and attain its target of low, sustainable inflation of 2%. This is important since persistent deflation has been cited as a factor damping domestic demand and stalling economic growth.

The other negative factor of a strong Yen from the Japanese perspective is that it makes Japanese goods and services more expensive in importing markets (when priced in Yen). For goods sold in local currencies, the profit margin is eroded when funds are returned to Japan and converted back to Yen, of course.

The Bank of Japan is expected to make further monetary accommodation soon which is designed to weaken the Yen, but it is unlikely that they can turn the tide of investor sentiment which perceives the Yen as a safe haven when markets are falling. As money piles into the Yen, its value rises and Japanese economic headaches intensify. At the moment, the Yen has risen by a shade under 10% against the Dollar which is a very significant shift. It is unlikely that the pressure will abate until investor confidence that the global economy will strengthen returns. At that point, funds will flow from the Yen and into stocks, pushing markets higher and the Yen lower.