CSeveral factors within a nation can have a significant effect on the currency exchange
rates and the relative importance of each is the subject of debate; however, it is important
to be aware of some of the key fundamentals. In addition to these concerns, the Japanese
Yen has been the subject of government intervention when the exchange rate is perceived
as detrimental to business exports - although this is not a guarantee of future intervention.

Inflation: It is generally believed that countries with consistently lower inflation exhibit a
rising currency value while countries with higher inflation may see currency depreciation.

Interest Rates: Interest rates in Japan have been kept low by the central bank in an effort
to spur economic growth. This low interest rate has attracted investors to borrow in Japan
to invest in other countries, a practice which is known as carry trade.

Overall Economic Conditions: Everything from a country’s balance of trade to the size of
their deficit or surplus can serve as a barometer of the condition of the country and the
likelihood of default. Investors look for countries with stronger economic foundations;
the better the economic foundation of one country versus another may increase the value
of the country’s currency.

Perception: The so called “flight to quality” exists within foreign currencies as investors
will often seek what they perceive as “safe haven” currencies during times of political or
economical instability.