Friday morning in Asia, the yen soared to new multi-day highs against its major counterparts as a global stock market sell-off triggered large scale unwinding of carry trade positions. In carry trade, investors borrow money from Japan where the interest rate is low to buy high yielding assets in other countries. So, an unwinding of carry trades results in traders liquidating their investments and scrambling for yen to repay their yen-denominated loans, which pushes up the value of the Japanese currency.
The yen strengthened to a 10-day high against the pound and the franc and a 1-week high against the dollar, the euro, the kiwi, the aussie and the loonie.
The Japanese stock market was trading sharply lower for the second consecutive session today after U.S. stocks tumbled overnight on mounting recession fears. Investor confidence also eroded after automaker Toyota slashed its full-year earnings forecast by more than half, while a stronger yen dragged down exporters.
At 7.22 P.M. ET, the benchmark Nikkei 225 Index was losing 445.86 points or 5.01% to 8,453.28 and the broader Topix Index of all First Section Issues was down 48.12 points to 861.18.
The yen that closed yesterday's trading at 97.72 against the dollar rose to a 1-week high of 96.77 during early Asian deals on Friday. On the upside, 96.4 is seen as the next target level for the Japanese currency.
In early Asian trading on Friday, the yen edged up against the currencies of Europe and UK. At about 8:20 pm ET, the yen reached a 1-week high of 122.49 against the euro and a 10-day high of 150.38 against the pound, compared to Thursday's close of 124.31 and 152.77, respectively. If the yen gains further, it may find resistance around 114.4 against the euro and 140.7 against the UK currency.
The euro, pound and the franc are under heavy pressure as the central banks of Europe, UK and Switzerland lowered their interest rates yesterday.
The Bank of England reduced its key interest rate by a bigger-than-expected 1.5 percentage points to alleviate the mounting pressures on economy. At the end of its two-day meeting, the Monetary Policy Committee decided to slash the official Bank Rate paid on commercial bank reserves to 3% from 4.5%. Economists had expected the BoE to cut the rate by 50-100 basis points.
The central bank has not cut the rate by more than 50 basis points since 1993. This is the lowest rate since 1955 and the single largest cut since the central bank gained independence in 1997. This is also the largest reduction since 1981, when the then benchmark minimum lending rate was cut to 12% from 14%.
The European Central Bank slashed its key interest by 50 basis points to support the 15-nation economy, which is on the verge of a recession. The Governing Council lowered the key-lending rate, which is the minimum bid rate on the main refinancing operations, by 50 basis points to 3.25%, as expected. The interest rate on the marginal lending facility was reduced to 3.75% and the interest rate on the deposit facility was cut to 2.75%. Economists foresee further rate cuts by mid 2009.
Following the rate cut announcement, the European Central Bank President Jean-Claude Trichet struck an uncharacteristically dovish pose in Frankfurt, suggesting that dropping commodity prices and diminishing demand will lead to price stability for the Euro area in 2009.
"The outlook for price stability has improved further," stated Trichet. "Price, costs, and wage pressures in Euro area should continue to moderate."
Trichet's comments left the door open for further rate cuts moving forward as the European policy makers grapple with the stark reality that the world is on the verge of a deep, prolonged recession.
Against the Swiss franc, the yen climbed to 82.06 in early Asian deals on Friday. This set the highest point for the yen since October 28. The next upside target level for the Japanese yen is seen at 79. The franc-yen pair was worth 82.98 at yesterday's North American session close.
Yesterday, the Swiss National Bank said it was lowering the three-month Libor target range by 50 basis points to 1.5%-2.5% with immediate effect. This translates to a reduction in interest rate to 2% from 2.5%, the second rate cut in a span of one month. The central bank said it intends to hold the rate in the middle of the target range for the time being.
The latest interest rate move was out of schedule and was the biggest reduction since March 2003. The central bank was not scheduled to announce a rate decision until December.
During early Asian deals on Friday, the yen jumped to a 1-week high against the higher-yielding currencies. At about 8:20 pm ET, the yen advanced to 56.11 against the kiwi, 80.59 against the loonie and 63.40 against the aussie, compared to yesterday's close of 57.32, 81.58 and 64.97, respectively. If the yen moves up further, it is likely to target 55.7 against the kiwi, 78.2 against the Canadian dollar and 55.7 against the aussie.
Investors now look forward to the busy European session, in which the Swiss unemployment rate, French trade balance, German trade balance and industrial production reports are slated for release.
Across the Atlantic, the week ends on a busy note with the release of U.S. and Canadian employment reports.
In the U.S., nonfarm payrolls are expected to decline by 200,000 jobs, following September's decline of 159,000 jobs. The unemployment rate is also expected to increase to 6.3% following September's rate of 6.1%.
Later in the morning, the U.S. Department of Commerce will release wholesale inventories for September. Meanwhile, housing data will be of interest to markets, as the National Association of Realtors releases U.S. Pending Home Sales for September. The U.S. Federal Reserve is expected to release its monthly consumer credit report at 3 pm ET on Friday.
Meanwhile, Atlanta Federal Reserve President Dennis Lockhart will speak on the economic outlook in Palm Beach.
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June 12, 2026 17:14 ET Major central bank action was the focus this week in economic news. The European Central Bank became the first major central bank to move in response to the rising inflationary pressures in the backdrop of the conflict in the Middle East. In North America, the U.S. inflation and trade data as well as Canada’s central bank decision gained attention. The Chinese trade data was the main news in Asia.