US Unemployment at 10.2%
The Japanese yen gained on Friday after US figures showed an unemployment rate of 10.2%. The US government reported a loss of 190,000 jobs in October causing concerns about the state of the US economy and spurring demand for the safe haven of the yen. Although recent news reported an increase in US GDP and a rise in consumer sentiment the new figures raised doubts about economic recovery.
US Labor Market to Remain Weak
Unemployment has plagued the US economy and about 20000 jobs a month have been lost in the US. Economic analysts believe that the US labor market will remain weak and consumer sentiment could be pressured. Samarjit Shankar of BNY Mellon stated, “The yen has obviously benefited … from risk aversion, The big psychological impact was from the 10.2 percent unemployment rate. It’s going to cast further doubt on whether the incipient U.S. economic recovery can be sustained without further government support,”
US Rates to Remain Low
The dollar vs. yen rate fell 1% and the yen last traded at 89.85 yen. The euro fell 1.2% against the yen trading at 133.45 yen. Two-year U.S. Treasury yields eased after the jobs figures putting further pressure on the dollar against the yen. The widespread belief that US rates will remain low has many currency experts speculating that the dollar is replacing the yen as a source of funding for carry trades. In carry trades investors and traders borrow low yielding currencies and use them to fund investments in higher yielding assets and currencies. Paresh Upadhyaya of Putnam Investments said, “Dollar/yen has essentially become an interest rate play. With interest rate differentials narrowing further against the dollar, you’re seeing dollar/yen under pressure.”
Commodity Currencies Gain
Despite the spike in risk aversion the dollar was little changed against most other major currencies. Commodity based currencies like the Aussie and Kiwi dollars rose against the greenback. The Aussie rose 0.6% to US$0.9166 while the Kiwi rose 0.4% to US$0.7245.
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