Tokyoesque Insights

The Power of Yen: Understanding How Foreign Exchange Influences The Japanese Market

By Tokyoesque

A recent NHK World-Japan report discussed how the Japanese yen briefly fell to ¥120 to the dollar, the lowest level it’s been over six years. Traders are selling yen in anticipation that US interest rates could rise more quickly than previously expected, after the US Central Bank suggested they might raise rates by twice as much. The yen, in turn, lost its ground after the Bank of Japan announced its plans to maintain its massive monetary easing program for the time being.

The Japanese yen (JPY) is the third-most traded currency in the foreign exchange (forex) market after the US dollar and the euro, as well as being an important reserve currency. The yen is strong due to Japan’s strong economy, as the country exports more goods than it imports. When inflow is larger than outflow, a country has a huge investment resource — which is why Japan is a large creditor nation.

With the pandemic, however, the Japanese government’s stimulus package has weakened the JPY exchange rate. And although a weaker yen has long been seen to boost the Japanese export economy, its status as an anaemic currency has recently become unfavourable with the surge of importation. In this article, we’ll explore the power of JPY over the Japanese market.