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News JPY at its weakest level vs. USD since 2002

thomas

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Today, the yen plunged to 126 per cent, the lowest level since May 2002, following a remark by Haruhiko Kuroda, the chief of BOJ, that he would continue the central bank's monetary easing policies.

The yen immediately plunged to 126 per dollar, the lowest level since May 2002. Currency trading insiders said Kuroda's comment indicates the Japanese central bank has no means to prop up the yen. Some experts predict the yen will drop to as low as 130 per dollar. The Japanese currency has tumbled by more than 11 yen against the dollar since March, when the Federal Reserve Board raised interest rates for the first time since 2018. The BOJ, on the other hand, has maintained its monetary easing policies, keeping Japan's interest rates low. These divergent central bank policies have increased yen-selling and dollar-buying. Some market players had predicted the BOJ would change its policies because the weaker yen is increasing prices of imported products, threatening to further strain the finances of businesses and households that are already reeling from the novel coronavirus pandemic. However, Kuroda's comment dashed those expectations.


According to a Reuters poll, more than three-quarters of Japanese firms say the yen has declined to the point of being detrimental to their business, with almost half of companies expecting a hit to earnings.

While yen weakness is often a boon for Japan's export-driven economy, at these levels companies are more worried about how it inflates fuel and raw material imports, which are already soaring due to the war in Ukraine. A decades-long shift to producing more goods overseas has also muted a weak yen's benefits.

 
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thomas

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No, we have always hosted in the US. Most of our visitors are there.

Dedicated servers used to be prohibitive in Japan. Things might have changed with Cloud services and all that, but I’d rather wait for the next server move, God forbid. 😆
 
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While yen weakness is often a boon for Japan's export-driven economy, at these levels companies are more worried about how it inflates fuel and raw material imports, which are already soaring due to the war in Ukraine. A decades-long shift to producing more goods overseas has also muted a weak yen's benefits.
I wondered if Yen being weak would be benefial for the country, by this text explained it
 
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thomas

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Ouch..... o_O

The yen posted its longest losing streak in at least half a century on bets further divergence between U.S. and Japanese interest rates is inevitable. The yen fell to the ¥128 range against the U.S. dollar in Tokyo Tuesday, marking a fresh 20-year-low after breaking the ¥127 line in New York overnight.


And it's here to stay.

 
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thomas

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Today, the dollar rose to 130 yen. And apparently, Japan has finally achieved its inflation goal of 2%. Not the way it was planned.

The bank revised upwards its inflation projection for the 2022-23 financial year to 1.9 percent -- sharply up from its previous 1.1 percent forecast. The figure, which excludes fresh food, is just below the bank's longstanding two-percent target but the BOJ saw the rises as unsustainable and is calling for continued effort to achieve a sustainable cycle of dynamic economic growth. Consumer prices are "likely to increase temporarily to around two percent -- due to the impact of a significant rise in energy prices -- in fiscal 2022", it said Thursday. "However, the rate of increase is expected to decelerate, because the positive contribution of the rise in energy prices to the CPI (consumer price index) is likely to wane."



And Forbes explains why BOJ boss Kuroda could as well be replaced by AI.

If Kuroda does more of what the BOJ has been doing for 20-plus years, opening the monetary spigots further, the yen's 11% decline this year might accelerate in ways that spook world markets. Throttle back on liquidity and government bonds would quake, while Japan's stock market could collapse. With its zero interest rates, quantitative easing and negative-yield innovations, the BOJ has arguably built the best—or surely the most unique—monetary mousetrap around. Unfortunately, it's gotten trapped inside it.

 

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I wish I knew more about macro finance. Once the discussion starts to trend towards yield curves my eyes start to glaze over. I can sort of understand the high concept of why an inverted yield curve signals recessions, but anything beyond that starts to sound like 4-dimensional chess.
What I read is that the BOJ has a choice between letting their bond yield curve rise (which would in turn trigger something horrific), or keeping their bond yield curve low by promising to buy up all of their own bonds, thus causing the yen to tank. Or something like that. Already I'm at my limits of comprehension.

Japan was trying for so long to get interest rates to rise, but now it appears they are afraid of their bond rates rising, so.... my head hurts. I can understand that if the JPY bond yields rise, Japan is on the hook for massive interest payments. But, like I said, my head hurts thinking about how Japan was trying to escape from deflation, but now they are trying to avoid inflation.

And there used to be conventional wisdom that the weak yen was good for Japan's mighty exporters (Toyota, etc.), but obviously the country depends on imports of everything to survive, and even Japan's major corporations are now outsourcing much of their supply chain overseas, so the weak yen means price increases across the board.

Feels like the global economy is creaking and groaning. I thought JPY130 to the dollar would be a tripwire for action by the BOJ, but I guess not.
 

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Here is a tweet that illustrates my bewilderment. This economist says Japan's core inflation is deeply negative. Not just negative, but deeply negative. In other words, Japan is still experiencing deflation. I don't know what he is basing this on. I think he must be mistaken. "Core Inflation" excludes food items, but even still, "core inflation" should be high, even in Japan, simply because of the increase in fuel/energy costs, not to mention the rise in any electronic components or raw materials. Yet here is a former ABN Amro global macro economist stating that Japan is still in deflation. So I look at this and I think, "the yen is going to crash further".
japan core inflation.JPG

But common sense tells me that no Japanese person would agree that Japan is experiencing deflation. Even if we agreed to exclude the grocery bill, which already seems absurd to me, but I don't write these definitions.
So how is anyone supposed to figure this out? If global economists are saying that Japan is at the polar opposite of the inflation spectrum, and people in Japan are looking at the $/¥ exchange rate wondering how Japan will pay for natural gas and oil and steel and fertilizer, etc... It's mind-numbing. (By the way, I have no idea what that last sentence of the tweet means. Is the BOJ supposed to let the yen get weak, or is it supposed to intervene with the help of other central banks to prop up the yen. I have no idea what that tweet is supposed to teach me.)
 

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I don't speak/understand financial jargon. However, someone mentioned that other central banks might only intervene and bolster the JPY if its depreciation threatened global finances in the same thread. It looks as if the experts are as hypothetical, read clueless as we, the populace, who could not care less about whether it's old-fashioned inflation or "deeply negative core inflation" that causes our groceries and electric bills to inflate.

Looking at Japan's demographic trends, we should not be surprised. From the same thread:




"What sometimes appears to be a short-term move can in fact signal a deeper, more essential trend," said Taku Ito, chief fund manager at Nissay Asset Management Corp. "People have been saying that the yen is falling because of interest rate differentials, but it may actually reflect a weakening of the Japanese economy." [...]
Rising food and energy costs are pushing up the country's import bill and its trade balance has been in deficit for eight consecutive months. The consumer price index accelerated to 1.2% last month, while a gauge that strips out food and energy costs dropped 0.7%. Consumers who waited for wage rises that never came are unwilling to pay higher prices. The central bank is holding out for domestic demand to pick up and businesses that cater to Japan's home market are caught in the middle.

 

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Not only is that tweeter not an economist, he's not a very good Googler. The core inflation rate has been positive since last October.
 

thomas

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While my sympathy for diplomats is limited, I commiserate with students and salarymen: the weak yen severely impacts those who live abroad and receive Japanese salaries, stipends, or scholarships.

A 31-year-old woman living in Germany with her husband is one of those feeling the harsh effects of the cheap yen. Her husband works for a Japanese corporate organization and his salary is paid to a bank account in Japan. Therefore, the weak yen inevitably affects their purse-strings when they convert the salary into the local currency. "Even if I use a service to minimize the remittance fees, the amount of spendable income becomes small. It's not a huge amount, but it's a matter of great concern for a general household," the woman lamented. A 30-year-old doctoral student in the United States receives a Japanese scholarship. As the money is paid into his account at the fixed rate of 108 yen against the dollar, set when the Ministry of Finance makes an annual budget request, there is a gap with the actual rate now. Food and gasoline prices are soaring in the U.S. due to high inflation and the Ukrainian crisis, so the student says he changes supermarkets he goes to depending on what he buys, and takes a bus as much as possible. "What if the gap with the real rate widens? Other students and I are getting nervous," he said.

 

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Maybe this, if goldman sachs can be relied on:


Goldman Sachs says the Japanese yen is the 'ideal hedge' against a US recession given its weakness against the dollar

Wed, May 11, 2022, 9:54 PM
  • The Japanese yen shows "significant value" as a hedge against a US recession, Goldman Sachs said.
  • Goldman Sachs said part of its bullishness towards the yen is how cheap it is compared with other typical safe-havens.
  • The bank said there's a strong chance of the Bank of Japan intervening to support the yen, given global market volatility.
Goldman Sachs believes the Japanese yen is an ideal hedge against the risk of a US recession, which the investment bank believes is a possiblity in the coming two years.

In a research note published on Tuesday, Goldman analysts, led by Karen Reichgott Fishman, noted that the yen is trading at "extremely cheap levels" and is undervalued aga ins the dollar to the tune of 20-25%.

"In other words, the yen is now trading at historically cheap levels and screens as the cheapest safe haven asset by far—at a time when global recession risk is on the rise," Fishman wrote.

Fishman said the yen looked especially cheap compared with other traditional safe haven currencies such as the US dollar or the Swiss franc.

The yen has been diving against the dollar and reached a 20-year low last week, partly because of the widening gap between US and Japanese interest rates, as the Bank of Japan has left monetary policy unchanged, while the Federal Reserve is in an aggressive tightening cycle to combat inflation running at 40-year highs.

The BoJ meanwhile has pledged to cap the country's 10-year government bond yield at 0.25%, while 10-year Treasuries are yielding more than 3% right now, the biggest difference between the two since late 2018.

Fishman said the situation has "opened up significant value" for the yen as a hedge against what the bank estimates is a 35% chance of a US recession within the next 24 months. "Our latest work on FX hedges for key risk scenarios shows that the yen screens as the most effective hedge against a 'risk down, US rates down' shock—or a market backdrop consistent with recessionary pricing."

A rising dollar-yen however, is likely to call for intervention, Fishman noted, especially at a time when commodity prices, like energy, skyrocket as a result of foreign sanctions from Russia's war with Ukraine. "Over the short-term, amidst highly volatile global markets, the yen will likely be influenced by changes in Treasury yields and commodity prices," she said.

Given Japan's reliance on energy imports in particular, which are priced in dollars, the extreme weakness in the yen means there is a greater chance the central bank will step in to support the currency and avoid an even bigger increase in inflation.

"The combination of cheap valuation, non-trivial risk of intervention, and, most importantly, rising odds of recession to open up paths to dollar-yen downside," she said, referring to the potential for the yen to strengthen against the dollar.

"cheap valuation, non-trivial risk of intervention, and, most importantly, rising odds of recession" will lead to a dollar-yen downside, meaning a greater opportunity to sell the dollar and buy the yen.

"Cheap valuation and rising odds of recession argue for a more constructive view on the Yen over the next year," Fishman said.
 
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Maybe this, if goldman sachs can be relied on:

I hope so. Things are very unpredictable in the whole world right now, but I do think Yen may rise again given the other countries situation and how cheap Yen is. Europe will probably have more recession as well
 

thomas

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Meanwhile, a daily topic in the news: the rising prices of daily necessities. Time to tighten the belt?


The consumer price index jumped by 2.1 percent in April, the eighth straight month of increase and the largest surge in 14 years, the internal affairs ministry said May 20. Excluding periods when the consumption tax rate was raised, the last time the CPI rose by more than 2 percent was in September 2008. Higher costs for imported petroleum pushed overall energy prices up by 19.1 percent over April 2021. The cost of materials used in food products also shot up due to the weakening yen. Prices for food products excluding perishables increased by 2.6 percent year on year. The CPI rose by only 0.8 percent in March due in large part to decreases in communications expenses. Major mobile phone carriers introduced discount plans in spring, leading to about a 50-percent year-on-year drop in communications expenses in March.

 

Haruto Uzumaki

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Well, I barely understand any of this thread except "convert money to JPY bad, keep money in USD good (until needing to spend it in Japan)

So I'm guessing when I go to Japan if the inflation is getting worse still, I should convert the money I that estimate I'll need for the day, and keep the rest in a US bank, or the value of my money will probably decrease compared to if I kept it in USD, right?
Or even better, maybe I should find a way to hold all my money in euros? Since its value is even higher than USD?
 

mdchachi

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Well, I barely understand any of this thread except "convert money to JPY bad, keep money in USD good (until needing to spend it in Japan)

So I'm guessing when I go to Japan if the inflation is getting worse still, I should convert the money I that estimate I'll need for the day, and keep the rest in a US bank, or the value of my money will probably decrease compared to if I kept it in USD, right?
Or even better, maybe I should find a way to hold all my money in euros? Since its value is even higher than USD?
I don't think that's the correct takeaway. If you think you will need yen, now's a good time to buy it. It may get cheaper or it may not. Hard to tell.
 
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