Japanese Yen May Rise if COVID-19 Triggers a Credit Crisis

Should the US dollar or Japanese Yen increase in value, do you think the primary beneficiary will be Japan or the United States? It may be hard to answer that question. What is true, however, is that either currency has the ability to increase in value should the other become weaker.

Over the last several years, the use of foreign exchange markets has been one of the most rapid and primary, secondary sources of wealth creation in the world. Now many people believe that the US Dollar or Japanese Yen is the primary reserve currency. The main reason for this belief is that the Federal Reserve and others have not been doing anything about the strength of the US Dollar or its ability to hold its value.

Another reason is that many people believe that the government’s efforts at bank bailouts is akin to throwing money at a house fire to save it. As I write this, the Swiss are debating whether or not to allow their national currency to trade on the Foreign Exchange Market. If the Swiss agree to trade, it could completely change the course of world trade.

There are many European nations who are afraid of this development and want to retain their currencies. Why would anyone do that? Well, when the Euro becomes less valuable, the Europeans may decide that their reserve currencies should no longer be the Euro and EuroPlus.

One thing I know for sure is that should the US Dollar or Japanese Yen decrease in value, it will be far less likely that the primary currency will be lost. Remember that countries need foreign exchange income. They would rather hold their own primary currency than be dependent on another nation.

When our banking system struggles or gets into trouble, it often times does so because they can’t hold on to their cash. So they lose the foreign exchange income. However, if they trade away their primary currency, they will be a lot more protected from bank failures and economic problems.

This brings us back to the Swiss Central Bank, which is rumored to be considering allowing the Euro to trade on the Foreign Exchange Market. As I mentioned earlier, many believe this move is an attempt to weaken the Euro. However, they also have another reason.

In my opinion, the only way a weak Euro would have any chance of succeeding in the world marketplace is if the Swiss allowed their currency to trade independently. That means the Euro would not trade against the Swiss Franc. I do not see how they could make that type of decision without going against political correctness.

It is hard to imagine some of the Central Bank officials in Switzerland standing up in public and announcing they were trading away their own currency. As I stated before, they have been very quiet on the issue. Nevertheless, I expect they will take their time and consider this idea for a while.

The Federal Reserve Chairman Ben Bernanke is looking for a solution to the debt crisis and his first instinct might be to help Europe recover from a severe recession. If this takes place, that opens the door for the Euro to become stronger. In that case, there is every possibility that both currencies could increase in value.

Another possibility is that the Japanese could again join the ranks of being a major currency trader in the Foreign Exchange Market. After all, the Japanese have been interested in using their reserves as a reserve currency for quite some time. They are also trying to improve their current standard of living by investing in technology.

If the United States starts to default or comes close to doing so, the same thing would apply to the Euro. As long as Japan’s economic situation improves, it appears the Japanese yen is very likely to rise and the US dollar would likely fall.