Japanese Yen Drops to 7-Year Low

Issue 116

On Monday the value of the Yen dropped even further in comparison to the USD with $1 being worth roughly 125 Yen. Much of the decrease in value can be attributed to the continued widening interest rate differences between the two countries, however, both countries are happy with the weaker Yen as it has allowed Japan to be more competitive throughout the global market.

The Yen has seen a continuous drop in value in foreign exchange markets with 110 Yen being worth $1 only six months ago. The drop is the largest that the country has seen in the past 7 years and is likely to continue with the interest rate gap making it better to hold the dollar at higher returns.

The weaker Yen does provide benefits for both countries, however, as the stronger dollar gives greater purchasing power to the United States while cheaper goods give Japan a greater ability to compete throughout the global market. The central bank released a report in January stating that the depreciation of the Yen by 10% will increase the country’s GDP by 1%.

The weaker Yen may also have a positive impact on inflation throughout the United States as lower costs for imported goods may decrease prices and counteract growing inflation which is one of the Biden administration’s top concerns.

Source: Financial Times