Yen descend

The currency of the world’s fourth largest economy is plummeting, with ¥100 buying just $0.63 on Friday — its lowest rate in over 34 years, just as Japan's Golden Week holiday period kicks off.

The weaker yen is a boon for Japanese exporters and foreign visitors, who have been increasingly flocking to the country in recent times. Indeed, last month a record 3.08M foreign travelers visited the island nation, which was slower than others to re-open borders after the pandemic, only relaxing restrictions in October 2022.

The yen's depreciation is a perfect case study for economics teachers around the world. While most major central banks have aggressively hiked rates to combat inflation, Japan's rates remain near zero — fueling a classic “carry trade”, where investors borrow the currency cheaply and sell it to invest in higher-yielding currencies or assets (i.e. stuff that’s likely not in Japan), driving down the buying power of yen.

The US, meanwhile, is at a different stage in its cycle, attracting buyers for its currency as the Federal Reserve signals it might need to maintain higher interest rates for longer amidst lingering inflation.

A weaker yen could reshape the Japanese economy, making the country’s exports more competitive and foreign imports more expensive. In the short term, Japanese authorities have appeared publicly sanguine about the devaluation, although a sharp jump in yen this morning has been met with strong suspicions that the government may have moved to support the currency.