The Mainichi Shimbun answers some common questions readers may have about the rising value of the Japanese yen since the beginning of this year.
Question: How does a currency rise and fall?
Answer: Currencies are traded on foreign exchange markets. When investors buy the yen and sell other currencies, the value of the yen rises. For example, the rates of the yen against the U.S. dollar show how much of the yen is needed to exchange it into a dollar. It was at the 120 yen-level against the dollar at the end of last year, but the yen's value has recently risen to the 115 yen-level per dollar.
Q: Why is the yen rising?
A: It is partly due to plunging world stock markets derived from the fear of a slowing Chinese economy and falling crude oil prices. If investors feared that stock market prices would continue to fall, they are likely to sell stocks and other assets that pose higher risks and buy the Japanese yen, which is believed to be relatively safe among currencies.
Q: What does it mean by "safe"?
A: Investors feel a sense of safety about the Japanese yen since Japanese politics and the economy, as well as its financial systems, are relatively stable and the environment for a free market is set where an investor can buy and sell their shares whenever they like. Unlike emerging economies where there is a risk of political turmoil and sudden restrictions on market exchanges, the yen is "the most suitable currency for temporary reserve when risks are increasing," according to a major securities company. In addition, investors buy the yen to purchase Japanese government bonds, which have smaller risks of price volatility than stocks.
Q: How about the U.S. dollar? Isn't it safe?
A: The U.S. dollar is the key international currency used in currency exchanges around the globe. Previously, when there were wars and other turmoil, investors bought the dollar expecting positive aspects of the overwhelming military capacity of the U.S. and its political stability. Recently, however, the U.S. is losing its presence and consequently investors are losing confidence in the dollar due to the rise of the Chinese economy and the way the U.S. is responding to terrorism. Trust in the euro, a common currency in the Eurozone, has been damaged due to debt crises since 2010. Under such circumstances, more yen is being bought compared to other currencies. (Answers by Kazuya Suzuki, Business News Department)