Comment by koito17
8 hours ago
The devaluation didn't really get out of control until 2022 IME.
In 2021 you were still able to divide by 100 and not be far off in conversion. Typically traded between 105 ~ 115.
Nowadays the Yen is so weak that I unconditionally convert my whole paycheck to USD after paying rent. Even if risk-free interest rates between Japan and United States converge, there's just not much reason to hold Yen if you want to avoid losing purchasing power to inflation.
e.g. I can risk money in NTT stock for a meager 3.0% dividend yield. Or I can convert to USD and keep the cash in my brokerage account, where it earns 3.4% interest. If I want to raise the risk to similar levels as the NTT stock, I would be looking at utility company ETFs yielding up to 7% for the past few years. Of course, there is foreign exchange risk (e.g. 10% move down in USD/JPY and a year's worth of carry trade gains are eliminated). But if the fundamentals were there for a stronger Yen, then intervention wouldn't be necessary. So for now I'm exposing myself to FX risk for the chance at getting marginally better wealth preservation.
As someone who hasn't followed this closely, when/why did things switch? Japan had the opposite deflation problem for years (decades?) and IIRC tried battling that with "money printer go brrrr" for a long time. How did inflation become their primary problem?
The "Yen Carry Trade" has been a popular way to fund speculative plays in the financial markets.
https://www.stonex.com/en-us/insights/the-yen-carry-trade-is...
Luckily, the current technology equity market has sound fundamentals and lacks speculative opportunities.
My understanding is that Japan experienced the same kind of phenomenon that is unwinding in the US right now.
As long as your markets and tax policy are vicious enough that lots of normal people can barely make ends meet, you can print as much money as you want and it won't show up on the CPI. Instead, if you funnel that money to rich people, it will show entirely as growth in the price of investment instruments.
At the same time, you will have great economical indicators, and even large taxes that can be spent on anything that doesn't end up on the population's bank accounts (like on infrastructure).
But that money keeps piling up on investment, making them more and more distant from normal cost of life expenses. As soon as any of it reaches normal people, the CPI explodes.
Is that unwinding in the US right now or is it winding up?
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- External sources of inflation: COVID global inflation raises price of imports, same with Russia v. Ukraine global inflation.
- Post a few up is way too aggressive about completely dismissing Iran conflict inflation/gas. It matters, big time, and specifically for Japan, it's a 3rd thing to add to above external sources of inflation.
- They held interest rates while ex. US hiked them, also making currency less valuable. (intentionally, and a good idea)
FWIW this isn't necessarily a bad thing, for Japan. It broke the dam of stagnation.
It is more unusual that the US did this than that Japan's currency depreciated.
My $0.02: the backstory starts with the bonds boys not liking the new fed chair. Long term USD interest rates spiked big time this week, after his press conference, not after the announcing they weren't hiking rates.
If they allow another spike due to dread of Japan dumping Treasuries, you might suddenly have a crisis
(your source: 38 yo, BA in economics @ 22, who kept up with economics nerdery along the years)
Do you think the USD inflation will be less than 0.4% above the JPY inflation? I mean, the USA has basically just admitted to us they feel they're on the precipice of a bond interest death spiral, which will cause hyperinflation when they print money to end it.