Yen Falls as Fiscal Cliff Averted

The Japanese yen fell to an 18-month low against the euro after the US House of Representatives voted in favour of measures to avert a series of tax-rises and spending cuts, known collectively as the fiscal cliff.

After the vote was announced the euro soon rose to 115.995 yen. This was followed by the USD gaining ground to reach 87.335 yen, the highest level since July 2010. Whilst the USD performed well in relation to the euro, it was not all plain sailing with it falling against the euro and Australian dollar.

The pressure on the yen is expected to add to the calls for newly elected Prime Minister Shinzo Abe to remove the Bank of Japan’s independence and implement a more proactive policy of monetary easing to tackle deflation.

Clem Chambers, CEO of ADVFN, argued that the “Bank of Japan has claimed that it is unable to create inflation for years” and that if Abe “strips the Bank of its independence, there will be reflation on a huge scale and the Japanese economy will come back from the dead.”

In addition to concerns about the yen, the USD still faces uncertainty following the Fiscal Cliff agreement, with it only setting out to plans to discuss spending cuts rather than outlining details of what action will be taken.

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