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0 sats \ 1 reply \ @Bell_curve 28 Jun 2024 \ on: Japan Fires Its Top Currency Diplomat As Yen Disintegrates econ

The Japanese yen has been steadily weakening against the US dollar over the past three years, reaching a low of 160.17 yen per dollar in April 2024, a level not seen since 1990[1][2]. There are several key reasons for the yen's decline:

  1. Interest rate differential: The US Federal Reserve's benchmark interest rate is currently 5.25-5.50%, while the Bank of Japan's rate remains at 0-0.1%, creating a significant gap that makes investing in US assets more attractive[1][4].
  2. Divergent inflation: The US has grappled with high inflation, prompting the Fed to raise rates, while Japan has struggled to achieve price and wage increases, leading the BOJ to maintain its ultra-loose monetary policy[1][3].
  3. Market momentum: As the yen falls, investors sell it, creating a self-fulfilling cycle that discourages exporters from converting foreign earnings into yen, further reducing demand[2][5].
  4. Cautious BOJ: The BOJ has been gradual in normalizing its monetary policy, raising rates slightly but maintaining a cautious stance, which has contributed to the yen's weakness[3][4].

The weaker yen benefits Japanese exporters by making their products cheaper for foreign buyers, but it also increases the cost of imports, putting pressure on household budgets[1][2]. Japanese authorities have intervened to support the yen, but the large interest rate gap is expected to persist in the near term[1][4].

Sources [1] Why is Japan's yen falling and why is it so weak against the US dollar? https://www.aljazeera.com/economy/2024/4/30/why-is-japans-yen-so-weak-against-the-us-dollar [2] Why has the yen fallen to a decade's low and what does it mean for ... https://www.theguardian.com/world/2024/apr/30/japan-economy-yen-currency-value-falling-low-impact [3] Japan's Economy is Stirring to Life. So Why is the Yen Weak? https://www.bloomberg.com/tosv2.html?url=L25ld3MvZmVhdHVyZXMvMjAyNC0wNS0yMy90aGUtd2Vhay15ZW4tYW5kLWphcGFuLXMtZnJhZ2lsZS10dXJuaW5nLXBvaW50LWV4cGxhaW5lZA%3D%3D&uuid=dae9437a-18ba-11ef-b6ac-3f75f9d3ce44 [4] Why has the Japanese yen been so weak? | Reuters https://www.reuters.com/markets/currencies/japan-hiked-interest-rates-why-is-yen-falling-2024-03-25/ [5] Why is Japan's yen falling? Retail investors are one reason https://asia.nikkei.com/Business/Markets/Currencies/Why-is-Japan-s-yen-falling-Retail-investors-are-one-reason

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0 sats \ 0 replies \ @Bell_curve 28 Jun 2024

Japanese businesses have several key concerns about the weak yen:

  1. Increased costs of imports: The weak yen makes imported raw materials, parts, and finished goods more expensive, squeezing profit margins. This is a particular challenge for companies that rely heavily on imports[1][3][5].
  2. Difficulty passing on higher costs: Many firms are struggling to pass on the higher costs to consumers due to competitive pressures, further eroding profits[3].
  3. Negative impact on consumer spending: The higher costs of living due to the weak yen is dampening consumer spending power and demand, especially for discretionary items like travel[3][5].
  4. Excessive volatility: While a gradual weakening of the yen can benefit exporters, the rapid and excessive depreciation makes it difficult for companies to plan and adjust. An exchange rate above ¥155 to the US dollar is seen as less advantageous[1][5].
  5. Potential disruption to supply chains: There are concerns that an excessively weak yen could negatively impact the entire supply chain, beyond just the importing companies[5].
  6. Psychological impact: The weak yen is having a large negative psychological impact, with some executives worried it will discourage younger consumers from traveling abroad[5].

Overall, while a weak yen can boost profits for exporters in the short-term, the current rapid depreciation is causing significant challenges and concerns for a wide range of Japanese businesses.

Sources [1] For Japan Inc., the weak yen may be too much of a good thing https://www.japantimes.co.jp/business/2024/05/01/economy/japan-inc-weak-yen/ [2] Japanese Companies Struggle With Weak Yen (JPY USD) https://www.bloomberg.com/news/articles/2024-05-02/japanese-companies-struggle-with-yen-s-continued-weakness [3] Majority of Japanese firms says weak yen hurts profits: survey https://www.businesstimes.com.sg/international/majority-japanese-firms-says-weak-yen-hurts-profits-survey [4] Japan concerned more about negative aspects of weak yen, finance ... https://www.reuters.com/markets/currencies/japan-concerned-more-about-negative-aspects-weak-yen-finance-minister-says-2024-05-28/ [5] Japanese companies struggle with yen's continued weakness https://www.businesstimes.com.sg/international/global/japanese-companies-struggle-yens-continued-weakness

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