**Because Japan’s inflation rate is only 2.6%.** This is the only reason why.
The US Federal Reserve must increase interest rates in order to curb 8%+ inflation rate. This causes the dollar to gain in strength. Japan does not have an inflation problem (yet). When it does, it will need to increase the interest rates too.
As long as Japan’s inflation rate is low, there won’t be anything done to curb the Yen’s slide. As long as inflation rate remains high in the US and Europe, then the USD/Euro will continue to gain in strength over the Yen.
So for the vocal expats in here, you can either choose high inflation 8%+ or low yen. You can’t have a high yen and low inflation in this economic environment. Basically, you can either suffer internationally (low exchange) or suffer locally (high inflation). Americans are suffering locally.
If you don’t plan to travel outside of Japan or exchange Yen into a different currency, then you’re better off now. If you do, then you’re worse off.
11 comments
Idk under which rock you have been living but inflation is definitely higher than 2.6%, no matter what the lovely government likes to report with their cherry picked cpi. That is true for both the west and Japan.
The real issue in both cases is the expansive money policy, everyone keeps printing money to delay the big crash that will inevitable eventually. The global economy is a late stage Heroin addict looking for the next shot until the OD comes.
Also, a weak yen isn’t necessarily bad for Japan. Sure, a weak yen was better for Japan a couple of decades ago when Japanese exports made up a big part of the GDP, but it’s still not bad for domestic industries.
It just sucks for people living here that want to buy things from overseas.
In rapid aging, population declining, no immigration, been in deflation for 10 years Japan, 2.6% is not low. I think Japanese government hasn’t done anything because if they raise interest rates it will crush the monthly payment of the average Japanese who has a 35 year variable rate mortgage at 1%.
Toyota.
Haha, okay here is the real reason:
Japanese government debt: 12.2 Trillion dollar USD (in Japanese yen) @ around 0.26%
Japanese government holdings of US debt: 1.2 Trillion USD (in USD) @ around 2.9%
The Japanese government is just milking it and are very reluctant to admit the real inflation rate, which would let the bank of Japan raise rates and have them cut their spending. (interest for new debt would go up)
(Yes, this is simplified)
Every country’s central bank has 3 things to do.
1. Keep the inflation in check
2. Look for GDP growth and adjust the interest rate
3. Keep the value of a currency in check wrt USD.
The central bank can handle only 2 things at a time, it has to neglect the third one.
BOJ is handling the first 2, leaving number 3 to be taken care of later.
> Reason why Japan’s government hasn’t done anything to curb Yen slide
I think the bigger reason is that the Japanese economy, wages, and the rest of it has been stagnant for thirty years, and now it’s entering its death spiral.
While Inflation could affect exchange rates, it isn’t the only reason. The yen slide is just a surge of demand for USD to buy treasury bonds because of higher yields (I am guessing).
Raising rates would make sense if JP needed to reduce the money supply. I.E. too many 10,000 yen bills out there makes the yen worthless. But comparing Japan and USA’s money supply (M1) from the start of the pandemic, mar 2020 paints a quite different picture.
I think you understand what the causes are. US Fed (and other central banks) are raising their rates to stem inflation.
There is inflation here and more is coming. I am involved in pricing in my job. I also ask around. The style so far, which has masked a bit of inflation, is to make things like serving sizes and package contents smaller rather than increase the price. Or do a bit of both.
Japan doesn’t have a lot of options. The BoJ can talk up intervention. They can consult with the other G7 members on currency fluctuations. They can issue bonds to raise money to then buy yen (but that’s expensive for an unknown outcome).
If the causes of the inflation were domestic, the BoJ might want to raise rates, however, much of the contribution to the inflation here is imports, so they are stuck.
You sort of have to wait this out. The US will keep raising rates this year but once inflation is tamed -or worse, we go into a US recession- things will normalize. Look at a long term FX chart. The yen fluctuates but comes back down to a long-term average.
Local goods are not rising in cost as fast as in the US. But imported goods now have ridiculously high costs. Some goods for my hobbies have almost doubled in yen, so I’m making do without. Import guitars, in particular are very high price now for yen.
And local prices, particularly at restaurants, are starting to increase. So we might end up with low yen-to-USD, high cost imports, and inflated local prices.
But dollar inflation should make the JPY/USD rate go the other way, no? Like, if the US has 100% hyperinflation, you would expect the dollar to weaken, & the rate next year to be 70 yen.