The USD has risen to a 25-month high against the Japanese Yen, including a 14% increase in this year alone. The Japanese economy has begun to show signs of life; its capital markets have performed those in the US, and Japan continues to run a massive current account surplus with the US. Hence, the USD’s continued appreciation against the Japanese Yen, and many other Asian currencies, has forex traders scratching their heads. Economists have turned to data on international capital flows in attempting to explain the weakness of Asian currencies. They believe rising US interest rates combined with the perceived stability of US capital markets are driving risk-averse investors, especially those in Asia, to shift capital into the US, which has generated massive demand for USD. The Wall Street Journal reports:

During the first eight months of this year, Japanese investors have poured $126 Billion into foreign stocks and bonds, up 19% from the same period last year.

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