Yen Hits Lowest Level Since 2015, and Japan, U.S. Are OK With That

TOKYO—The dollar rose to a more than six-year high against the yen Monday, fueled by Japan’s preference for a weaker currency and—in a shift—tacit acceptance from U.S. officials focused on inflation.

For the first time since August 2015, a dollar on Monday briefly bought more than 125 yen on foreign-exchange markets, compared with around 110 yen a half-year ago. The dollar was changing hands at around 123.93 yen late Monday in Tokyo.

The strong dollar means Americans and others whose currencies are linked to the dollar get more bang for their buck when they buy goods made in Japan, a potential boon with U.S. inflation running at nearly 8%.

It also means Japanese manufacturers have lower costs in dollar terms and gain an edge over U.S. competitors. That is driving Japanese policy makers to say that, on the whole, they are fine with the currency moves.

“There is no change in the basic structure that a weaker yen has positive effects on the Japanese economy by pushing up the overall economy and prices,”

Bank of Japan


Haruhiko Kuroda

said at a parliamentary session on Friday.

The central bank estimated in a January report that a depreciation in the yen by 10% would push up Japan’s gross domestic product by about 1%.

On Monday, the chief government spokesman,

Hirokazu Matsuno,

said Japan was watching the market closely and “any rapid movements are not desirable.”

The yen’s fall stems largely from the widening interest-rate differential between Japan and the U.S. The U.S. 10-year Treasury now yields nearly 2.5%, after the Federal Reserve raised rates and penciled in six more increases this year. That is 10 times the 0.25% yield on the equivalent Japanese government bond—at the top of the Bank of Japan’s targeted range. Meanwhile, the two-year Treasury yield is 2.3%, while the Japanese equivalent yield is just under zero.

On Monday, the Bank of Japan stepped into the market to defend its policy, offering twice to buy an unlimited quantity of 10-year government bonds at a price that would prevent the yield from rising further. It said it would conduct similar operations Tuesday through Thursday. Though low, the Japanese yield is still higher than at any time since January 2016.

Other things being equal, the U.S.-Japan interest-rate gap makes it better to hold dollars than yen because the returns are higher. In particular, analysts say the yield gap is reviving the “carry trade,” in which investors borrow yen at low rates and convert the money into dollars earning more interest.

The U.S. dollar last year saw its largest increase in value since 2015. That’s good for many American consumers, but it could also put a dent in stocks and the U.S. economy. WSJ’s Dion Rabouin explains. Photo illustration: Sebastian Vega/WSJ

Mr. Kuroda at the central bank is under little pressure to raise rates to match the U.S. trend, because inflation remains relatively quiet in Japan.

In the past, a sharp fall in the yen would likely have drawn outrage from U.S. politicians and companies. When he was in office, President

Donald Trump

frequently expressed dissatisfaction with other countries’ weak currencies.

“They play the devaluation market, and we sit there like a bunch of dummies,” Mr. Trump said shortly after taking office, singling out Japan, China and Germany.

But now, a strong dollar pushes down the cost of imported goods and tamps down inflation, a top concern for the Biden administration heading into fall midterm elections.

The Treasury Department’s most recent foreign-exchange report, released in December at a time when the yen was already weakening, expressed no concern about the moves.

While many Japanese companies have shifted production overseas, limiting the benefits of a weak yen, enough manufacturing remains in Japan that the benefits can be considerable.

Daiwa Institute of Research estimates that a 10-yen depreciation against the dollar—for example, if the dollar buys 125 yen instead of 115 yen—would raise one measure of Japanese companies’ collective operating profit by nearly ¥1.5 trillion, equivalent to about $12 billion. Auto makers in particular still export many made-in-Japan vehicles to the U.S., and the dollars they earn from American car buyers are now worth more in yen terms.

Takahiro Sekido, a strategist at MUFG Bank, said it would be difficult for the U.S. to push down the dollar even if it wanted to, because the world is turning to the U.S. to substitute for Russian energy. To buy American oil and gas, countries need dollars.

“The U.S. has no choice but to accept a strong dollar, at least in the short term,” Mr. Sekido said.

The weak yen isn’t entirely good for Japan because it adds to the burden of oil and gas imports, which Japan needs dollars to buy. Higher oil prices and unfavorable currency rates eventually get passed to consumers who pay more for gasoline and electricity.

The Japanese government is addressing the energy issue not by trying to change currency rates but by giving subsidies to oil distributors and preparing other support to ease the sting.

“We must respond flexibly to soaring prices of oil and other products,” Prime Minister

Fumio Kishida

said Monday.

Write to Megumi Fujikawa at [email protected]

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