Foreign exchange trading has been surging in the United States in recent years, fueled by the economic recovery and an increase in interest rates.
But the pace of activity has slowed considerably in recent months.
The Japanese yen has gained nearly 2% against the dollar and is up more than 11% against euro zone peers.
But that trend has been slowed by concerns about the yen’s stability and potential for deflation.
Japan’s central bank is also concerned about the risks of deflation, while investors in the yen and other foreign currencies are hedging their bets.
In recent weeks, however, some foreign exchanges have been taking advantage of a weak dollar, while others have been more active, said Shigeto Nakayama, a Tokyo-based financial analyst.
Foreign exchange has been the top driver of the Japanese yen’s gains since late 2017, when its rally was driven by demand for gold and interest rates have been low, Nakayam said.
The yen’s strong rally since late 2016 has led to concerns about deflation and an ongoing run on the country’s banks.
NakayAMA: A strong yen is helping the Japanese economy.
If the Japanese central bank gets a lot of yen back, then deflation would not happen.
It’s not a good idea.
Nakaya: Japanese stocks and Japanese banks have been trading at a premium for some time, Nakaya said.
In September, Japan’s biggest bank, Bank of Tokyo-Mitsubishi UFJ, reported a record $1.3 trillion in capital spending, and it announced plans to spend $1 trillion more in the second quarter.
That’s more than any other country.
In December, Japan announced a plan to spend nearly $400 billion more in capital by 2020.
But Nakayamas worries that Japan may not be able to continue its aggressive monetary easing until inflation rises significantly and interest rate hikes are less likely.
In other words, the Japanese government has to get rid of its inflationary policies and be able use the money to buy bonds or foreign exchange.
But there is no easy way to achieve this, he said.
There’s not much appetite to get more money into the system.
Konami: The yen is just being bought and sold for the sake of speculation, Nakaysama said.
In November, the top Japanese banks announced they would increase their leverage in foreign exchange markets to a record high of more than 20%.
The banks said the move would help to offset a slowing of the economy and help to lower borrowing costs for Japanese companies.
And in April, Japanese banks began buying foreign currency at a record pace, according to financial data.
But it’s been an expensive process for the banks.
Nakayama said there is some evidence that investors in foreign currencies like the yen are taking advantage.
The U.K. government’s own research group has concluded that Japanese investors were buying the yen, and that it’s getting cheaper.
But other analysts say there’s no evidence to suggest that investors are buying Japanese stocks.