On the basis of a 25% appreciation against the Dollar, 2008 marked the strongest year for the Japanese Yen since 1972, as the credit crisis caused a rapid unwinding of carry trades as investors abandoned risky positions. 2009 may not be as auspicious for the Yen, however, as a bevy of factors coalesces to halt its upward progress. First of all, global credit and forex markets have begun to stabilize over the last few months. The seemingly unending US government bailout has restored confidence in riskier sectors, such as the automotive sector. Coupled with a cut in Japanese interest rates, investors are being lured back into the carry trade. In addition, Japanese economic officials are becoming more vocal about the Yen's rise, which is threatening to send the export-dependent economy into another deep recession. It is therefore conceivable that the Central Bank could intervene on behalf of the Yen, despite the pleas of the G8. Bloomberg News reports:

The last time Japan intervened on its own, it sold a record 20.4 trillion yen ($226 billion) in 2003 and 14.8 trillion yen in the first quarter of 2004, when the yen rose as high as 103.42 per dollar.


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