The JPY also rose on speculation Japanese officials won’t act to weaken it even as they say they are concerned about the effect of yen strength on the economy. The Yen tends to strengthen during times of turmoil because Japan’s trade surplus makes it less reliant on foreign capital. The nation’s current-account surplus increased 42.7% to 1.4 trillion yen ($15.7 billion) in October from a year earlier, the Ministry of Finance said yesterday. The JPY traded at 130.01 per EUR, after appreciating yesterday as much as 2.4%, the biggest intraday gain since Nov. 27. Japan’s currency was at 88.43 per Dollar, following a 1.2% advance.

The Yen’s strength yesterday was additionally owed to other important factors. Stock market indices all over the world fell by several percent yesterday on persistent worries about the deepening economic downturn, which has driven traders back to the safe-haven Yen. There are no economic data releases expected from Japan today. However, the JPY is likely to move on economic news events coming out of the U.S. and Britain. These releases are likely to determine the JPY’s bullishness going into the middle of next week. Expect JPY bullishness to continue as traders pull their money out of riskier assets, and into more safe-haven ones.

The JPY was traded near a record high against the Sterling as speculation that the deepening financial crisis will force Britain to nationalize its banks boosted the haven appeal of Japan’s currency. The Yen was traded at 124.75 against the Pound after rising 0.1% yesterday and reaching an all-time low of 119.42. Japan’s currency also advanced against the GBP before a U.K. report that may show unemployment climbed at the fastest pace since 1991. Analysts say that the market is reflecting the downside risk of the global economy and an increase in risk aversion by investors. As a result, the Yen carry-trade is being unwound with the Yen as the beneficiary, and this move might likely continue for some time.

Japanese economists fear that the credit losses in Japan will spread, as the recession in the country is set to deepen. However, despite this the JPY is likely to increase its strength against its major currency pairs. This may come about as the global economic situation becomes more unstable. For example, by the end of the year the European Central Bank (ECB) is likely to cut its Interest Rates by another 100 basis points to 1%. This would as a result make Japan’s currency more attractive as people flock to the JPY, as carry trades unwind.

With very little news emanating from the island economy, it will be difficult to offer an accurate forecast for the movements of the JPY’s pairs and crosses. However, as the U.S. economy receives a boost from the international auto show taking place in Detroit, and as investors prepare for another Interest Rate cut in the Euro-Zone, it is likely that the JPY could see depreciation against the USD and appreciation against the European currencies later in the week. Nevertheless, these moves may only highlight a growing trend that the global currencies are weakening in general, which will inevitably lead to a stronger JPY in the near future.

As the global economy slows, the JPY and USD are likely to continue to strengthen against most other currencies in the world. Risky assets are also likely to remain under pressure, as long as the end of the global recession is not in sight. Japan’s Interest Rate remains the lowest, which continues to prompts investors to invest more in the Yen. Investors are using this to their advantage in carry trades, in which investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the two. Japan’s benchmark Interest Rate of 0.3% compares with 6.5% in New Zealand and 3% in the U.K. As investors are keen to continue cutting exposure to risk, and unwinding Yen-funded carry trades in the process, due to fears about forecasted global economic collapse, the Yen may extend its broad rally against the major currencies even further.