USD to JPY Exchange Rate Has Soared. Here are the Implications
The USD to JPY price rallied to the highest point in over 25 years after the latest statement by the Bank of Japan governor. The USD/JPY pair is trading at 137.40, meaning that the Japanese yen has fallen by more than 81% from its lowest level in 2012. It has jumped by more than 25% in the past 12 months.
Why is the Japanese yen crashing?
The Japanese yen has been in a downward trend in the past few months because of the Bank of Japan (BoJ). Unlike other central banks, the BoJ has maintained a relatively dovish tone even as inflation in Japan weakens.
The BoJ has maintained interest rates in the negative zone and continued to buy assets in its bid to prevent government bond yields from rising. The bank has been so aggressive such that its balance sheet has surged to over $7.3 trillion.
In contrast, the Federal Reserve has a balance sheet of about $8.8 trillion. Most importantly, the bank’s balance sheet is bigger than Japan’s GDP, which stands at less than $5 trillion.
In a statement on Monday, BoJ governor Haruhiko Kuroda said that the BoJ will likely continue to provide more stimulus in the coming months. This means that it will likely not move to hike interest rates in the near term.
The USD to JPY exchange rate has also risen because of the carry trade that has emerged. A carry trade is when investors borrow cheaply and invest in high-yielding places like in the United States.
Implications of a the USD to JPY exchange rate
The soaring USD/JPY rate has a major implication. For example, in Japan, the weaker yen is benefiting many large companies that sell their products abroad. However, these companies are having to pay more for their imports.
The weaker yen has also helped to fuel inflation since Japan has no major natural resources. Recent data showed that inflation has surged to more than 2%. For example, Japan is now paying more for both natural gas and oil that it imports from countries like the United States and Saudi Arabia.
Further, many Japanese retailers are struggling since they are paying more for their imported goods. And in Japan, it is relatively difficult for them to hike prices.
The weaker Japanese yen has also had an impact on money transfers. People in Japan are now receiving more yen when they receive funds from outside the country. On the other hand, they are spending more money when sending money. At MoneyTranfers, we can help you find the best exchange rate when sending money abroad.
