Figure 2.

6: Difference between 3-month LIBOR in USD and JPY over the years

(Source: Thomson Reuters)

Look at the char of interest rate difference of the dollar and yen we could see a
period of two years, the interest rate gap between these two currencies was gradually
narrowing. This makes the activity "carry trade" is difficult to bring profits to investors.
Thus, an important reason for making the Japanese yen to appreciate at this stage is
similar to the previous period, investors previously low-interest yen loans to buy assets,
foreign currency trading (the mainly U.S. dollars) higher interest rate. When the interest
rate difference is not significant, opportunities for profit that became difficult for
investors to sell assets in bulk, buying yen to repay the loan. This led to increasing
demand for higher Japanese yen and the Japanese yen appreciate.
Interference from China is also a cause JPY prices. According to figures from the
Ministry of Finance, Japan, China has stepped up to buy Japanese government bonds to $
6.2 billion in three months in 2010, double the record figure in 2005. First half of 2010,
China continuously increased buying Japanese government bonds. In June, China bought
456.4 billion yen continued (5.3 billion) Japanese government bonds. May 2010, the
amount of bonds that China bought Japan reached 735.2 billion yen.

The purchase of bonds as do China's demand for Japanese yen is getting hotter.
Moreover, the rise of the yen during this period is maintained in part by the Japanese
authorities can not intervene in the policy rate. Japanese Finance Minister announced the
rise of the yen will be governed by the market and the Central Bank of Japan will not
move from what is after the last time the policy used to sell yen on the open market in
2003.
Dated 14/09/2010, the JPY rose to a high 15 years later, ie the exchange rate JPY / USD
also won 83,022 of the Prime Minister Naoto Kan, continued declining rates of JPY /
USD.

• Conclusion:

As well as other rates, exchange rate JPY / USD also not affected by small changes
in the economy, politics in the period before and after the crisis. The global financial
crisis has made the U.S. dollar becomes weaker against all other currencies, including the
Japanese yen. Before the crisis, exchange rate JPY / USD kept at high levels. After the
crisis, quickly reduced rates. The economic variables such as GDP growth,
unemployment, inflation ... the two countries and the economy also affect the price up or
down the U.S. dollar and Japanese yen. However, we can say the most powerful factors to
changes in exchange rates is the increase or decrease interest rates by the monetary policy
of the United States and Japan in each period. Pre-crisis period, with the Japanese central
bank to maintain low interest rates, while the Fed increased interest rates several times as
the interest rate difference between the two countries at some distance. This has created a
status of "carry trade" on the market, making exchange rate JPY / USD always remain
high. At later stages, when the Fed has cut interest rates gradually to revive the economy
after the crisis, the interest rate gap has narrowed gradually makes the phasing of capital
investment overseas. Simultaneously trade surplus makes the yen strengthened constantly.