Japanese Yen Gains on Financial Fears, the U.S. Dollar Rebounds

Following the announcement that Lehman Brothers, the fifth largest investment bank in the U.S. will be filling for bankruptcy protection, investors quickly moved out of U.S. Dollar-denominated assets into Yen-denominated assets.  As a result, the Japanese Yen is poised to gain significantly against the U.S. Dollar. 

The U.S. Dollar rebounded from losses in early trading against the Euro and also rose sharply against other major currencies as oil prices dropped to a seven-month low.  Most analysts believe that the U.S. banking problems will certainly spread globally and U.S. investors are repatriating their flow in other countries back to the U.S., which has boosted the U.S. Dollar.

In today’s trading, higher-yielding currencies, for example the Australian Dollar, dropped.  European stocks dropped more than 4% and European credit spread widened.  Basically, with the equity markets lower in today’s trading, the Japanese Yen and lower-yielding currencies gained.

Bank of America has acquired Merrill Lynch and part of the arrangement is that the Federal Reserve Bank, for the first time, will accept stocks from Bank of America in exchange for cash loans

At 12:04 GMT, the U.S. Dollar fell by 2.1% against the Japanese Yen at 105.66, the biggest one-day decline since early 2007.  The Euro fell by 2.7% to 149.16 Yen