Japanese Yen Falling: A Global Economic Shift

The Japanese yen has been on a downward spiral, and it's not just a domestic issue. The yen's value has fallen by 12% against the US dollar in the past year alone, making imports more expensive for Japanese businesses and consumers.

This decline is largely due to the Bank of Japan's monetary policy, which has kept interest rates low to stimulate economic growth. The low interest rates have made the yen less attractive to investors, leading to a decrease in demand and subsequently, its value.

As the yen's value drops, it's affecting the global economy, particularly in countries that rely heavily on trade with Japan. For example, the US trade deficit with Japan has increased by 15% in the past year, making it more challenging for American businesses to compete with Japanese exports.

The impact of the yen's decline is being felt worldwide, and it's not just about economics; it's also about politics.

The yen's slide has been driven by the difference between interest rates in Japan and the US. The US Federal Reserve has aggressively raised its main interest rate from 0.25% to 3.25% since March.

This has made the US currency more attractive to investors, leading to a decrease in demand for the yen. As a result, the yen's value has fallen.

The yen's value has hit multi-year lows against several strong currencies, including the euro, the Australian dollar, and the Chinese yuan. This has led to a boom in tourism in Japan, with a record 2.79 million visitors in February.

The weakening yen is having a significant impact on Japan's economy.

Tourist dollars are going further than they have in generations, leading to a boom in the tourism industry.

In February, Japan recorded a record 2.79 million visitors, a testament to the increased appeal of the country to tourists.

Domestic consumption, however, remains a major weak spot in Japan's economy.

Households tend to be net importers and are facing higher prices due to the weak yen.

The weak yen is also causing big Japanese investors to keep their cash abroad, where it can earn better returns.

The strong US dollar has made American investments and assets more attractive to major financial institutions.

The yen's slide is a result of the difference between interest rates in Japan and the US, making the US currency more attractive to investors.

The US Federal Reserve has aggressively raised its main interest rate from 0.25% to 3.25% since March, which has a direct impact on currency values.

Higher interest rates tend to make a currency more attractive to investors, leading to less demand for currencies from countries with lower rates.

This is exactly what's happening with the yen, as investors seek out higher-yielding currencies like the US dollar.

The resulting decrease in demand for the yen has caused its value to fall.

Japan has intervened in the global currency market to prop up the yen, with authorities spending an estimated $21bn and $37bn in recent weeks.

The Japanese government has refused to confirm its involvement in the second intervention, despite traders seeing signs of it earlier this week.

Experts warn that these attempts to prop up the yen will only have a short-term effect.

Japan intervened in the currency market three times in 2022, selling US dollars it holds in reserve to buy yen, with Tokyo estimated to have spent around $60bn defending the currency at that time.

The Japanese government has said it will take necessary actions to stop the yen's bleeding, with Finance Minister Shunichi Suzuki stating that rapid, one-sided moves in exchange rates are undesirable.

There are doubts as to whether any actions can reverse the weak-yen tide, which is driven mostly by uncertainty over when the US Federal Reserve will start cutting interest rates.

The weak yen has a significant impact on Japan's economy and people. The country's imports have become more expensive, with a 46% jump in the amount spent on oil and gas last month due to exchange rates and rising energy prices. This has a major problem for Japan's consumers, who have seen their purchasing power halved over the last decade.

The value of the yen has dropped so much that what used to be worth $132 now only gets you something worth $67. Average salaries in Japan have hardly risen in over three decades, making this issue even more acute. People need to use the yen to pay for things overseas, such as when they travel or their children study abroad, which makes it even harder.

On the other hand, the weak yen makes Japan more attractive to tourists, whose holiday money goes further. In 2019, Japan welcomed 32 million foreign visitors who spent about 5 trillion yen.

Japan's economy has been stagnant for three decades, with hardly any growth to speak of.

The country's finances are a major concern, with Japan being the world's most indebted nation.

A low birth rate and an aging population are also significant issues, with Japan having the highest proportion of older people in the world.

The government has tried to address the population problem by allowing some foreign workers to enter the country, but there is still strong opposition to immigration.

Takeshi Fujimaki, a former adviser to billionaire investor George Soros, believes the yen will hit 180 against the US dollar and eventually collapse in value.

The weak yen has significant consequences for both consumers and businesses. The value of the yen has plummeted, making imports much more expensive.

Japan relies heavily on imported oil and gas, and the cost of these imports has jumped by 46% last month. This is due to rising energy prices and exchange rates.

For consumers, the weak yen is a major problem. Their purchasing power has been halved over the last decade, meaning that 10,000 yen can now only buy half of what it could ten years ago.

The average salary in Japan has hardly risen in over three decades, making it even harder for people to afford everyday items. This is especially true for those who need to use the yen to pay for things overseas, such as when they travel or their children study abroad.

Good news for tourists! Japan's currency is sliding in value, making the country more attractive to visitors, as their holiday money goes further.

In 2019, Japan welcomed 32 million foreign visitors who spent a significant amount of money in the country.

Tourist numbers are still lower than that level, but investment bank Goldman Sachs predicts inbound spending could reach 6.6 trillion yen within a year of the country fully reopening.

This is a promising sign for the tourism industry and the Japanese economy.

The yen's value is a complex issue, and its decline is largely due to the difference in interest rates between the U.S. and Japan. The Bank of Japan has only just begun to ease off its intense monetary stimulus, while the Federal Reserve has been tightening cycles for years.

This interest rate gap is a significant factor in the yen's weakening, and it's not just a recent development. The currency has been on a continual slide since early 2021, and over the last three years, the yen has lost more than one-third of its value.

The Federal Reserve's higher-for-longer policy path is the main obstacle to the yen's recovery. Until the Fed relents, the yen's slide is unlikely to stop.

The Bank of Japan has attempted to normalize monetary policy by lifting its benchmark interest rate out of negative territory, but these efforts have been dwarfed by the Fed's interest-rate hikes. This has created a wide gap in interest rates that puts pressure on the yen.

Japan's low inflation environment is also a contributing factor to the yen's decline. The country has struggled to get prices and wages to rise after decades of economic stagnation, making it one of the few countries with rock-bottom borrowing costs.

The Japanese government is aware of the situation and is watching the market with a high sense of urgency. However, it's unclear whether any actions can reverse the yen's decline, which is driven mostly by uncertainty over the Fed's interest rate decisions.

The yen's future is uncertain, but there is a glimmer of hope. If inflation continues to fall in the U.S., it could quickly change the outlook for the interest rate gap between the dollar and the yen, and the Japanese currency could make a dramatic comeback.