It seems that the weak yen is because people don’t want JPY rather than just interest rate difference

13 comments

1. Where did you buy your crystal ball? Mine just keeps repeating Gunma’s weather forecast

2. People don’t want JPY because USD interest rates are higher.
   The rate difference dictates the rate of USD/JPY exchange rate change

3. “no one wants JPY”, what do you think is the reason for that ?

   Is it because saving USD gets you better interest than saving JPY ?

4. I mean the interest rate difference is still there.

5. Sir, this is a Suki’s.

   > People are exchanging JPY to USD

   Gosh geez, I wonder why they’re doing that. Could it be because of the >!interest rate difference!<?

   Markets work on an expectations basis. The Fed had just projected fewer rates cuts than people expected, so JPY depreciated. The BOJ also had just announced they’re _not_ cutting back bond purchases until Jul at the earliest.

6. I’d say the interest rate is still the biggest reason. Easily. You can make 5% guaranteed return with USD. Of course, you can argue that’s because inflation is running rampant but still…more than what you’d get for your JPY anywhere without taking on huge risk.

   Aside from interest rates of the USD, there’s always the looming population issue with Japan. Not sure how that’s gonna work out in the medium-long term. Population will probably re-stabilize but it’ll take 100 years. Why would you hold the currency of a dying nation?

7. This might answer your question.

   [USDJPY](https://youtube.com/clip/Ugkx9v-RS-2hfsXV1EjNEMNQ3sd3p1YFbTI1?si=yBZd0sI_7xxQHKm3)

8. You generally buy dollars to purchase things sold in dollars like pistachios, NVIDIA stock, crude oil, and more dollars (as T-Bill interest.) People really like those things that are sold in dollars. I’ve been following the news about the Saudi petrodollar getting deprecated. It will be interesting to see how that affects FX rates.

9. I posted this about a year ago — none of this is rocket science and BoJ made their portion of the equation extremely easy to forecast (the schizophrenic Fed not so much).

   BoJ stated two years ago they would be ending their negative rate policy and increasing rates. They also stated their target short term target rate over the next couple of years was a ***max*** 0.20% (from -0.20%). They are close to that now. I’m not sure why BoJ’s directive wasn’t pinned in this sub as it would eliminated a lot of questions.

   Uninformed people took this as BoJ is increasing rates and thus the Yen will get stronger — not understanding that terminal rate is still effectively zero for all intensive purposes compared to the USD and other major currencies (this is a rounding error for many currencies). Those folks got wrecked and had just had to keep selling their Yen to cover their losses.

   BoJ saber rattling of bond purchases, etc will ensure it is not a straight line, but the rate difference will continue to push the long term direction of the JPYUSD. Japan has been smart in their holding of US treasuries in their national funds to bolster pensions given their economic/population/debt woes will continue to tie their hands for domestic solutions. The Russian war also did not come at a good time hammering Japan on the energy front.

   However, all things end and I expect that foreign investors (namely US-based PE) will eventually swoop in and start buying up “cheap” Japanese companies (especially those that own Tokyo commercial real estate). Companies are starting to realize that Japan is now a only a slightly more expensive option to SEA suppliers, and more capable. Although the [lack of English] language barrier and obtuse business customs will continue to be a challenge. But I believe it will eventually lead to (re)stability for the Yen. Although the Yen is the least of Japan’s worries over the next two decades.

10. It’s a snowball effect. Interest rates difference kick started it and then w the strength of US economy, stock market performance, NISA investment strategy all goes towards selling yen to buy USD. Many have lost confidence of yen when they see BOJ and MOF not willing or able to defend its weakening. The resulting psychology effect is many think this trend will continue and further the cycle of yen selling. Ask yourself, is there a bright spot in Japan economy that will encourage inward capital flow into Japan ? Just being cheap is not going to cut it. I agree if Fed cut interest, 145~ is the highest the rate will go.

11. This is a great article that explains it all 
    https://news.yahoo.co.jp/expert/articles/ffbd5d677f244e0889475cd629943738ea187ee5 
     

12. im a noob in macroeconomics and trying to understand this.
    US interest rates are higher than Japanese interest rates, that’s why people are selling JPY and holding USD so that they can earn that US yield via US treasuries?

    why dont japan just increase japanese interest rates, then investors wont sell USD into JPY, and JPY value is maintained?

13. I just converted over 2mil JPY back to eur. I really thought the Yen would become stronger again, but if this continues, there is really no point holding yen in the long term, unless something changes dramatically.