Final answer:
Trades between the Japanese yen and the Mexican peso are often conducted through the U.S. dollars due to its role as a global reserve currency, providing stability, wide acceptance, and liquidity in international transactions.
Step-by-step explanation:
Most trades between the Japanese yen and the Mexican peso are made through the U.S. Dollars because the U.S. dollar acts as a global reserve currency. The U.S. dollar holds a unique position in the world economy, facilitating easier liquidity and stability in the international foreign exchange markets. Due to historical and economic factors, many countries prefer to conduct their international trade using U.S. dollars, even when the trade is between two non-U.S. countries.
The U.S. dollar is often chosen for its stability and wide acceptance. For instance, the volatility observed in the relations between the yen and the dollar—such as the changes from 133 yen/dollar in 2002 to 90 yen/dollar in 2009—and its impact on economic planning, demonstrates why businesses prefer dealing in a currency that is widely recognized and has a vast market. The use of U.S. dollars in trades helps mitigate the risks of exchange rate fluctuations that can otherwise have significant economic implications.
Additionally, there might be limited direct exchange markets or liquidity for certain currency pairs, like the yen and peso. Because the dollar has a more established and liquid market, it becomes the default currency for trades between such currencies. This practice is known as vehicle currency trading, where the U.S. dollar serves as an intermediary in international transactions.