Bank of Japan Governor Kazuo Ueda addressed the weaker Japanese yen at a post-meeting conference. For now, he said, the yen’s weakness has not had an impact on underlying inflation in Japan. “Prices are overshooting as a whole and the chance of inflation moving in line with our forecasts is rising. Exchange-rate volatility could have a significant impact on the economy and prices. If yen moves have an effect on the economy and prices that is hard to ignore, it could be a reason to adjust policy."
It's an interesting situation. If they keep interest rates at zero they devalue their currency. If they raise rates.... Their central bank owns most of the Japanese government debt. Raising rates instantly devalues the existing 0% debt. Since that debt backs up their currency.... They devalue their currency. I suppose they could start liquidating their us govt debt to protect the value of their currency but that's going to hit exports. Which hits GDP. Which hits debt to GDP ratio. I don't see how they get out of this.
It's gonna be hard to get it to turn around, but IMHO, when it does the unwinding of long USD is going to be epic. Of course nobody, or at least, not me, knows how much higher this will get.
If you look on the USDJPY monthly chart and zoom out, there is a lot of room to the UP side and it is possible that it will keep going up but I find it difficult to buy at these levels (due to the risk of intervention) and I don't want to short it because of the high -ve swap. I can't help thinking that all this is intentional and by devaluing they also want to become more competitive against Korea and China.
And why should they care when everyone in Japan is making money?. Yen weakness leads to huge capital gains on foreign bonds and equities, most easily summarized in the observation that the government pension fund (GPIF) has roughly made more profits over the last two years than the last twenty years combined. https://www.zerohedge.com/markets/y...rderly-look-final-sharp-decline-it-hits-floor
JPY is already undervalued on a funda basis. Clearly though the market has been expecting the BOJ to raise rates for quite some time (as during the ill-fated rally in late ‘23), and now lots of players are caught on the wrong side. I plan to start taking profits around USDJPY 164. The run should last another month at the very least, and possibly as long as three months before a meaningful top.
Because they've made it so unaffordable for the average person that their population is actually declining. Japan is not a self-sufficient country. They have to buy things like food and fuel. They also need to be able to afford raw materials to make their export goods. It's not just whether you're making money but how much the money you're making is worth.