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Yen binge-buying in contingencies no longer viable

  • March 23, 2022
  • , Nikkei
  • JMH Summary

Asahi reported on the yen’s accelerated depreciation against the dollar triggered in part by the Fed’s hike in interest rates. The daily said that although the yen previously rose rather sharply vis-à-vis the dollar during major contingencies such as the 2008 global economic collapse triggered by the bankruptcy of Lehman Brothers and even the 2011 triple disasters in Tohoku, the yen has kept losing ground lately despite the ongoing crisis in Ukraine. Global investors customarily rushed to purchase the yen whenever the world economic outlook became uncertain in a bid to avoid risks based on the belief that holding their assets in yen would be safest because Japan’s net external assets were the largest by far. That financial practice is apparently coming to an end, however, as Japan no longer posts a trade surplus because of soaring energy and other import prices. The paper also attributed the declining value of the yen to the nation’s weakest economic fundamentals among the G7 members, with an analyst projecting that it will keep sliding if Japan’s economic recovery continues to be constrained by the pandemic. While noting that BOJ Governor Kuroda remains committed to supporting a weak yen to put an end to the prolonged deflation, another economist conjectured that he may be forced to change course given that consumers will be upset if prices for daily necessities continue to rise while their wages remain low.

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