Find Out Why The Japanese Yen Is Falling Against The US Dollar And What The Effects Are

Japanese Yen: During Asia’s early trade on Monday, the value of the Japanese yen fell to 160 US dollars. As expectations for Federal Reserve rate cuts remain delayed, the greenback is still strengthening, which is why this decrease is occurring, according to a CNBC report.

The value of the yen relative to the dollar has been centered around 150 or less since the Bank of Japan ended its negative interest rate policy in March. The central bank kept rates unchanged and increased its estimates of inflation for the 2024 fiscal year by a little amount on Friday.

On Monday, the Japanese markets are closed owing to a national holiday.

Motives behind the Momentum and Slide Rates

In foreign currency markets, interest rates and momentum are important factors that are now against the yen. For more than three years, the yen has been steadily declining; since the start of 2021, it has lost around one-third of its value.

Producing Money
The yen is the G10 currency with the lowest rate, or yield, which attracts investors who are involved in “carry trades.” In these transactions, the yen is cheaply borrowed and then sold to fund investments in currencies with greater yields. This tendency is especially attractive when market volatility is low because of the significant rate differential between Japan and other nations.

Monetary Policy Change
Japan’s central bank changed its policy from negative interest rates in March, a historic move. But investors were encouraged to expand their short yen holdings since the expected move did not seem to hold out much hope for major rate rises in the future. April saw a ten-year high for yen shorts, driven by the rates situation and the possibility of higher returns on capital stored overseas.

Concerns About Intervention
Now that the yen’s decline vs the dollar has gone beyond the threshold that sparked government action in 2022, there is cause for anxiety over possible government involvement to support the currency. Since late March, when Finance Minister Shunichi Suzuki threatened to take “decisive action” against speculative swings, traders have been more wary of the market and are keeping a careful eye on the 153–155 area as a possible intervention zone.

Consequences of Exchange Rate Index
In February, the real effective exchange rate index value of the yen reached an all-time low, indicating that tourist spending would have more buying power and that travel would be on the rise. Nonetheless, domestic consumption in Japan is still low, and as a result of the weakening yen, household costs have increased.

Effects Outside of Japan
Beyond Japan’s borders, the yen’s depreciation might possibly erode Chinese manufacturers’ competitive edge and be a contributing factor to the recent decreases in the value of the yuan. Nevertheless, in spite of outside criticism, Chinese officials continue to exercise strong control over the currency.