Meet Japan the new currency devaluer

by Shaun Richards

Last night as the UK bank holiday weekend was coming to an end I took a look at financial markets and noted a new low for the Japanese Yen as the big figure versus the US Dollar became 127. Back on the 28th of March I quoted this from Nikkei Asia.

The yen weakened to more than 121 against the dollar on Tuesday, a level not seen since February 2016.

They went on with this.

“I think we could see an exchange rate of 125 yen to the dollar by the end of the year,” said one forex dealer who further shorted the yen. The Japanese currency last hit this range in August 2015.

Why does this matter? There are the issues for Japan I will come to later but the Yen is an internationally significant currency as again I pointed out back then.

The Japanese Yen (world’s third most-traded & third-largest reserve currency) is on track for one of its worst months ever. ( @DavidInglesTV )

Today the Japan Times is reporting events like this.

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.

There was more.

Monday’s decline marked its longest losing streak since records compiled by Bloomberg begin in 1971, when the U.S. left the gold standard.

Also there was a bit of echoing of the view in Nikkei Asia on the 28th of last month as we learn something about how things are being presented in Japan itself.

The emerging consensus among traders in Tokyo is that it will reach ¥130 against the dollar in coming months.

What is causing this?

Interest-Rate Expectations

The issue here was revved up last night by a policymaker at the US Federal Reserve.

April 18 (Reuters) – U.S. inflation is “far too high,” St. Louis Federal Reserve Bank President James Bullard said on Monday as he repeated his case for increasing interest rates to 3.5% by the end of the year to slow what are now 40-year-high inflation readings………..Bullard’s preferred rate path would require half-point interest rates hikes at all six of the Fed’s remaining meetings this year.

Just in case he had not ramped this enough here is the Wall Street Journal.

St. Louis Fed President Jim Bullard: Raising the federal-funds rate by 75 bps at a meeting shouldn’t be ruled out, but it’s not my base case “at this point”

Whereas in Japan there are no such thoughts.

Kuroda, however, repeated his view the BOJ must maintain its massive stimulus programme to support a fragile economic recovery. ( Reuters)

Of course talk is merely that and the US Federal Reserve has only raised interest-rates to the 0.25% to 0.5% range. But currency moves often look at short-term bonds and at the 2 year maturity there is a 2.5% carry or if you prefer interest-rate differential in favour of the US Dollar.

Energy Problems

This is a major issue for Japan as the trade ministry METI put it a few years ago.

Originally, Japan is poor in resources such as oil and natural gas. The energy self-sufficiency ratio of Japan in 2015 was 7.4% which was a low level even compared to other OECD countries.

The Fukushima disaster had made a bad situation worse leaving Japan even more exposed to the sort of thing we are seeing now. With the rises in the price of gas this from the International Energy Agency poses a problem.

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Because Japan is one of the top global natural gas consumers and has minimal production, the country relies on imports to meet nearly all of its natural gas demand. Japan was the largest global liquefied natural gas (LNG) importer in 2019…….In 2019, Japan’s natural gas consumption reached an estimated 3.6 trillion cubic feet of natural gas per year (Tcf/y), about 4% higher than a decade ago

It also pointed out the reliance on oil imports.

Japan’s oil consumption was an estimated 3.7 million b/d in 2019, making it the fifth-largest petroleum consumer in the world behind the United States, China, India, and Russia.

With prices at current levels this poses an increasing problem. The price of Brent Crude Oil is above US$112 today and even in the US gas prices are soaring.

Holy moly, US natural gas is on a mission to hit $8/mmbtu for the first time since 2008 ( @SStapzinski )


The energy issue is a major factor in changes here too. Over time we have got used to Japan racking up trade surpluses even if that was dented for a while by the Fukushima crisis. This meant that Japan built up large foreign asset holdings. But now things are starting to look rather different.

Amid soaring commodity prices, the country logged a trade deficit for the seventh straight month in February. And increasing red ink means Japanese companies need to sell more yen to acquire dollars to pay for imports, thereby putting downward pressure on the yen.  ( Japan Times)

The issue is one of increasing concern within Japan.

However, due to the structural change in Japan’s trade balance, concerns are growing that the country may even post an annual current account deficit. Because of the increasing red ink in the trade arena, Japan posted a current account deficit in December and January. Although February saw a ¥1.64 trillion current account surplus, the figure was down by 42.5% year on year.

After all it has been a while.

The last time the nation recorded an annual current account deficit was 1980, following the 1979 oil crisis, according to a Finance Ministry official.

So there are shifting sands here.


As so often Japan seems to be dodging the inflation bullet with the leading indicator for Tokyo at 1.3%. But there is this pointed out by the Bank of Japan.

dissipation of the effects of a reduction in mobile phone charges

So soon we will have numbers without that and there have been factors keeping the price of rice low.

Rice farmers are particularly vulnerable. Unlike wheat and corn, which have seen prices skyrocket as the war jeopardizes one of the world’s major breadbaskets, rice prices have been subdued due to ample production and existing stockpiles. That means rice growers are having to deal with inflated costs while also not getting more money for their grains. ( Japan Times)

That cannot continue.


It is time to remind ourselves of our 2 major themes in this area. The first was the years of Yen strength as like is “Currency Twin” the Swiss Franc  it got further boosted by the Carry Trade. Well as Bob Dylan sang.

For the loser now
Will be later to win
For the times they are a-changin’

But also there was the period where Prime Minister Shinzo Abe pursued a policy called Abenomics which was designed to weaken the Yen except after an initial move it didn’t. He must be furious right now. Along the way we found out some unexpected developments for economics 101 as this did not do the trick.

The Bank will purchase Japanese government bonds (JGBs) so that their amount outstanding will increase at an annual pace of about 80 trillion yen……The Bank of Japan will conduct money market operations so that the monetary base will increase at an annual pace of about 80 trillion yen.

A big problem for this was that so many were ( and in some cases still are) at the same game.

Also imagine how this is going down in Beijing as China has been accused of being a currency devaluer for years whereas it seems that it is Japan who is at that game. One Renminbi buys more than 20 Japanese Yen now which is up nearly 20% over the past year.


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