The Bank of Japan has announced a 10 trillion yen ($126.7 billion) asset purchase stimulus plan to help kick-start the third largest economy in the world. Despite the action, the yen has continued to gain strength, continuing a multi-year bull run. The Guggenheim CurrencyShares Japanese Yen Trust (FXY) recently broke through its 200 day-moving-average.
"As a consequence of QE3, the US dollar is the weakest performing G10 currency this quarter and pressure on the already overvalued yen has been stepped up," Jane Foley, currency strategist at Rabobank, said in a report. "Retaliation against the Fed's QE3 announcement provides a decent explanation as to why the BoJ decided to waste no time in announcing further monetary policy measures."
Central banks around the world seem to be in a race to the bottom to devalue their currencies, based on recent easing measures the past month.
First, the European Central Bank announced a bond-buying program, then the Federal Reserve announced QE3, spurring Japan to provide a stimulus.
The Fed, BoJ and other central banks appear to be in currency wars as they weaken currencies to help exporters and boost their economies.
The Bank of Japan recently left the interest rate unchanged at 0.1%, reports V. Phani Kumar for MarketWatch.
"Whether the BOJ will squeeze domestic investors out of the yen and into foreign currencies is uncertain, but more aggressive easing is always to be welcomed in deflation-struck Japan," Kit Juckes, a currency strategist at Societe Generale, said.
Despite attempts by The Bank of Japan, the yen has kept strength against the U.S. dollar. Some analysts say that the attempts made last year to intervene in the currency markets were too weak. Another reason intervention has been difficult is that there is more market participation compared to 20 years ago, so keeping a currency from being at its natural place in the market is hard, reports David Saito-Chung for Investor's Business Daily. The dollar is trading at about 79 yen per dollar.
Guggenheim CurrencyShares Japanese Yen Trust
Tisha Guerrero contributed to this article.
Additional disclosure: Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates.