The Japanese Yen has been struggling against the US Dollar in recent months. The yen has been weakened against all major currencies in 2022. As the yen depreciates against the dollar, businesses and households face a higher financial burden. This is particularly true for Japanese industry, which is heavily reliant on imported goods. However, the yen has been gaining some ground recently.
Japan’s monetary policy is different from that of the United States. Although the Bank of Japan has opted to maintain low interest rates, it has not ruled out a rate hike in the near future. In addition, the yen has come under increasing pressure from rising inflation.
As a result of the yen’s decline, many Japanese investors are seeking overseas credit to boost their returns. They are putting their money to work in overseas bonds and stocks, but they remain reluctant to invest in longer-dated yen debt. A change in monetary policy could make Japanese investors more cautious about committing money to longer-dated yen debt, which is why some see it as more attractive to place their money abroad.
While the Japanese yen has been weakened against all of its major peers in the past few years, it is still far from the yen’s lowest point in August 1990, when the currency fell to 140 against the US Dollar. But the yen has been enjoying a rebound over the past few weeks. The yen was trading at a 142 to 1 exchange rate, up from a low of 125 to 1 in November. It has since settled back to a more reasonable level.
The Japanese Yen has a long history as a major currency. For decades, the currency has served as a safe haven for investors, with its low inflation rate and strong trade surplus. When the yen reached a 24-year low against the US Dollar in December, the Bank of Japan intervened to support the currency.
Today’s yen-dollar exchange rate is now hovering around 250 to 1. After adjusting for consumer-price index data, the exchange rate is close to 250. At this exchange rate, the dollar has been languishing for over a month. That is not a good sign for the dollar, especially given its anti-risk profile.
Aside from the yen, the other major currencies are also seeing the ominous signs of depreciation. The euro, pound, and the dollar all face headwinds. The Euro is facing a twin deficit due to the twin deficit in the United States, and the euro is overvalued in terms of purchasing power parity.
On the other hand, the yen has been getting a lot of the attention recently. The currency has been gaining some ground against the dollar in recent months, though the yen is still well behind the dollar. Interestingly, the yen has also been receiving bids on the rise in market volatility.
Despite its relative weakness against the US Dollar, the yen is a key component of Japan’s economy, and the central bank’s approach to monetary policy is unique among its Western counterparts. Although the Bank of Japan has not ruled out a rate hike, it is unlikely to move any further in that direction, as it is concerned about shoring up its currency.