“Skyrocketing chart”
Image extraction: DALL・E2

On March 19, 2024, the Bank of Japan lifted its negative interest rate policy and decided to abolish Yield Curve Control (YCC), marking the first interest rate hike in 17 years.
(Reference: https://www.bloomberg.com/news/live-blog/2024-03-19/bank-of-japan-monetary-policy-decision)

Despite widespread expectations that this would lead to the yen being bought, the Japanese yen rate has barely moved, continuing its steady trend towards depreciation as before.

As one of the Japanese living abroad, I frequently complain in this blog about the difficulties posed by the weakening yen, and this post is another installment in that series.

Not being able to complain about $1 = ¥150. The days when it changed from $1 = ¥105 to ¥120 and we were screaming feel nostalgic now.

The Weakening Yen Trend Continues

Considering almost all financial analysis and investment information from analysts and the media as noise, I hardly follow any analysts in particular. However, I usually make an exception for articles by Mr. Yu Sasaki (wiki: https://ja.wikipedia.org/wiki/%E4%BD%90%E3%80%85%E6%9C%A8%E8%9E%8D *in Japanese).

This has been the case since the so-called second Greek crisis in 2015 when the euro price rose, and Mr. Sasaki provided a clear explanation for it, which personally made a lot of sense to me.

The article at that time → https://www.reuters.com/article/idUSKBN0OZ10Y/ *in Japanese

I thought to myself, “Indeed, someone who works at J.P. Morgan Chase is different.”

At that time, especially in the midst of the unfolding events, Mr. Sasaki seemed to be the only one providing a compelling explanation, at least to me. This was in contrast to analysts from other major banks who were mostly causing confusion.

Regarding the current depreciation of the yen, Mr. Sasaki has clearly stated in YouTube programs and Reuters articles that “the depreciation of the yen will continue,” and, sadly, this explanation also makes sense to me personally.

(Reference: Reuters: https://jp.reuters.com/opinion/forex-forum/6RZF66MEEJNRPNNP2PMTR5ZC5E-2023-12-04/, YouTube: https://youtu.be/vy7uBYwa6Uc *in Japanese)

The reason is that “the fundamental deterioration of the yen is severe, and it is impossible to revert to a strong yen trend with just a slight interest rate increase by the Bank of Japan.”

(Reference: https://jp.reuters.com/opinion/forex-forum/PXHT2VEFZ5NI3ETXXGT2RWVOS4-2024-03-22/ *in Japanese)

The USD/JPY Pair Depends on US Interest Rates

In short, the fate of the currency pair between the weakened Japanese yen and the US dollar is dependent on the situation in the United States.

The economic conditions in the US and the Federal Reserve’s policy interest rates will have an even greater influence than before. To be more precise, the situation is almost entirely dependent on them now.

It is said that the Bank of Japan has raised interest rates three times since 2000: on August 11, 2000, and July 14, 2006, they ended zero interest rate policy, and on February 21, 2007, there was a further interest rate hike. All of these actions were taken when the policy interest rate difference between Japan and the US was over 5%, favoring the US dollar, including this time.

Until now, there were instances where the yen strengthened by a few yen, albeit temporarily, when the BOJ raised interest rates, but this time the outcome was uneventful.

Interestingly, the US is planning three rate cuts during 2024. The outcome could very much depend on the economic situation in America.

At any rate, the possibility (strictly a possibility) of the yen strengthening seems likely to emerge when there is a sense that America is about to make its first rate cut.

As of late March, it is said that many individual Japanese traders, often referred to as “Mrs. Watanabe,” have accumulated short positions in USD/JPY.

This could mean that cutting losses on these positions could fuel further rises. This is not insignificant for short-term traders.

Regarding Japan’s currency intervention (actual), it is said that $1 = ¥155~160 might be the benchmark.

$1 = ¥150 is Reasonable (?)

Reluctantly, I agree with the opinion that we should consider $1 = ¥150 as the base rate going forward. It’s quite painful for those of us accustomed to past rates.

In my case, the euro is more relevant than the US dollar, but as of March 2024, the EUR/JPY rate is about €1 = ¥164, which is also an unbearable rate.

If this becomes the new normal, the desire to earn yen is seriously dampened.

It’s an immutable fact that currency rates ebb and flow like waves, and there will surely come a time for a strong yen phase.

However, the issue lies in the path to that point and the time it will take.

The Possibility of Hyperinflation

One scenario is the crash of the Japanese yen, i.e., the possibility of hyperinflation, as asserted by some experts.

According to them, interest rate hikes would increase the amount of interest payments for Japanese government bonds excessively bought by the BOJ, leading to a default crisis for the BOJ. This would result in the yen being dumped by investors, with no stop to its price fall.

Naturally, there are experts who disagree with this view, and it’s hard to tell which is correct with just a bit of research.

However, considering all possibilities for investment, we need to think about the case of hyperinflation.

Hyperinflation is discussed on this page (https://inv.jp/en/uncategorized/o005/), but the prices for “exchanging to other currencies” or “buying gold” as preparations for such a scenario are vastly different from those of a bygone era.

But it might be better to start doing it little by little, which is the main content of this page.

Conclusion

Despite these currency issues, Japan’s stock prices are doing well.

Therefore, it is suspected that the Japanese government and the Bank of Japan are intentionally leading to a weaker yen as a national policy. Either way, converting to stocks as a hedge against a currency crash could be a good strategy, so buying Japanese stocks with yen might also be advisable.

As of March 2024, amid ongoing wars and conflicts, no major issues seem likely to significantly impact the stock prices of major countries, and major banks appear to have raised their stock price forecasts for this year.

“We know all too well that disasters strike when they are forgotten,” and we want to advance our preparations steadily at times like these.

…But the excessive weakness of the yen makes this task difficult. It’s quite troublesome.