Bank of Japan Announces Quantitative Easing Efforts

The yen is falling in forex trading today as the Bank of Japan announces emergency measures to prop up the economy. While the yen has pared some of its losses, the fact that the BOJ is going to introduce new quantitative easing programs does not bode well for how investors and forex traders view the economy.

However, part of the problem with the yen comes from the fact that some had expected stronger measures. Perhaps, they contend, the Bank of Japan is not doing enough. FX Street reports on the situation with the yen in forex trading:

Speculators expected some sharper measures, such as expanding its government bonds to ease the deflationary pressure. After hitting a 14 year low of 84.82 a week ago, Dollar/yen experienced a fell to 87.00 from a level of more than 87.50 just before the announcement was made. At the moment the Dollar Yen is continuing to maintain its rate at around 87.00.

As an immediate effect to the BOJ’s emergency meeting news about the financial and economical developments the dollar has risen, the euro and the aussie got a 1 percent level higher on the day against the yen.

The risk trade is in favor right now, and that is also weighing on the yen. The euro is higher in forex trading, along with the sterling. Even the dollar remains up against the yen.

Is a Gold Asset Bubble Forming?

As gold prices continue to head north of $1,200 an ounce, some investors are starting to get a little jittery about the possibility of a gold bubble as investors blindly rush to get into gold and out of the U.S. dollar. Indeed, there are some who contend that the real place to be right now is silver -- gold is just too hot.

And the fact that gold is so hot is one of the subjects of a warning issued by the vice governor of the People's Bank of China, Hu Xiaolian. He warns that gold might be forming an asset bubble right now. An asset bubble that could burst at any time.

But is China really interested in staving off a gold bubble for the good of the world? With China diversifying its investments over the past year, the indications might be that there is something else at work. The Street reports on some of the rumors concerning China's motives for the warning:

It was recently rumored that China could be a buyer of the remaining 200 tons of gold from the IMF. Some analysts speculate that perhaps China is trying to bring gold prices down to more attractive buying levels. However, Jon Nadler, senior analyst at Kitco.com, argues that "central banks in general look at foreign reserve management as an ongoing policy.... Price is really not an issue, it's a percentage issue."

No matter the reason that China issued the warning, though, it is sound. Something that is gaining in value this fast really is in danger of turning into a bubble.

China Reiterates the Dollar's Place in Its Foreign Reserves

Rumors that China has lost all confidence in the U.S. dollar have been circulating. It is true that China probably has a long-term plan to position the yuan as a global reserve currency, but that is sometime down the road. For now, the State Administration of Foreign Exchange (SAFE) insists that the U.S. dollar remains a key part of its foreign reserve strategy.

Indeed, GFT's Boris Schlossberg points this out in FX360 about the preference for the U.S. dollar:

Overall however, China’s preference for safety and liquidity in its foreign exchange rate portfolio leaves it with little choice but remain heavily positioned in US fixed income instruments which remain the most liquid capital markets in the world.

But that isn't to say that the U.S. dollar is China's only focus. China is diversifying into energy, gold and other currencies. So, while the dollar remains a key part of China's reserves for now, chances are that this won't be the case 15 or 20 years down the road.

Will the U.S. See a Downgrade in its Credit Rating?

Right now, the U.S. still has a credit rating of Aaa. This is the highest sovereign credit rating offered by the company Moody's. However, there is a clear warning being issued that the U.S. (along with Britain) may soon test this rating.

In order to better categorize countries with a rating of Aaa, Moody's divides them thus, reports MarketWatch:

Cailleteau divided the Aaa countries into three categories -- resistant, resilient and vulnerable.

The United States and Great Britain both fall in the "resilient" category, the report said.

"These countries are rated Aaa more because of their balance sheet flexibility than because of their current or projected debt levels over the next few years," Cailleteau wrote. ...

"Resistant" countries, such as Canada, Germany and France, were weakened by the crisis but started from strong fiscal positions. They don't face a lasting challenge to their economic model or a "massive risk of crystallization of contingent liabilities," the report said.

Clearly, the U.S. is not in the strongest position. However, it is not reached the "vulnerable" stage, and that is somewhat encouraging. However, in order for the U.S. to maintain, it needs to slow its use of debt, and take steps to reduce the deficit.

Canadian Dollar Heads Higher in Currency Trading

Canada saw a trade surplus in October, and that is helping matters for the loonie in forex trading on the currency market. The Canadian dollar is higher in currency trading, enjoying its status right now. GFT's Kathy Lien reports in FX360 on the loonie in forex trading:

Up North, Canada experienced a trade surplus in the month of October. The country's trade balance unexpectedly swung to a C$428 million trade surplus on stronger demand for energy and metals. Exports increased 3.4 percent while imports fell 0.8 percent, driving the Canadian dollar higher in the process.

The U.S. dollar is also higher against the pound and the euro in forex trading on its own trade news. The U.S. trade deficit narrowed. While forex traders were initially unimpressed with the news, the greenback has swung to gains against European currencies.