Weekly Financial Market News Analysis: 25/03/2024 – 31/03/2024
Weekly Financial Market News Analysis: 25/03/2024 – 31/03/2024
Writer: Klinsmann Lee
As the Japanese Yen drops, authorities signal possible intervention. [1]
Background:
Japanese Yen trades at 151.97 per dollar, the lowest in 34 years.
Despite moving away from negative interest rates, Japanese Yen continues to drop.
“Finance Minister Shunichi Suzuki said authorities could take “decisive steps” against yen weaknesses.”
A weak yen can negatively affect the Japan's economy as it increases the cost of living. A weaker yen can push up prices of Japanese imports and fuel inflation.
Japanese authorities intervened in the currency market to support the Japanese Yen in October 2022.
Klinsmann’s Analysis:
One of the reasons why the Japanese Yen continues to drop is the higher interest rate in the U.S. This attracts capital to the U.S. market and causes the Yen to drop.
Benchmark interest rate in the U.S. is 5.5% as of 30/03/2024
Benchmark interest rate in Japan is 0.1% as of 30/03/2024.
Although a weak domestic currency helps boost the country's exports (it becomes cheaper for foreign companies to buy Japanese products), it makes imports (domestic households purchase foreign goods) more expensive.
This is troubling for Japan where it imports a lot of natural resources such as oil. This creates a higher cost of living.
A moderate level of inflation is important as it encourages spending. A sustainable level of inflation helps promote “wage growth and better household purchasing power”.
With the yen dropping below the 152 per dollar level (when Japanese authority intervened in October 2022), I believe that Japanese authorities will likely intervene in the market again.
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