Japanese monetary authorities have been trying to keep the yen-dollar exchange rate above 105, and even to push it to 110. While their actions, of course, affect the sentiments of currency exchange dealers, we should realize that exchange rate fluctuations are determined not just by economic factors, but also political factors -- especially the risk of terrorism.
The euro-dollar exchange rate was at one time nearing 1.30 but has since dropped down to around 1.22, despite the absence of any appreciable change in economic fundamentals. Then came the railway bombings in Madrid.
The market has indicated that it smells some of that risk. We've noticed lately that more police officers are patrolling the streets in downtown Tokyo, and that the crackdown on illegally parked vehicles has apparently intensified.
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