Japanese Yen:

 Article Source: https://mainichi.jp/english/articles/20220607/p2g/00m/0bu/002000c

Article:

NEW YORK (Kyodo) -- The yen tumbled briefly to around the 132 line Monday in New York, its weakest level in 20 years and two months, as traders flocked to sell the Japanese currency for the U.S. dollar on speculation of further widening between the two countries' interest rates.

At 5 p.m., the dollar traded at 131.85-95 yen, compared with 130.76-78 yen at 5 p.m. Monday in Tokyo. The euro was quoted at $1.0691-0701 and 141.00-10 yen against $1.0742-0743 and 140.47-51 yen in Tokyo late Monday afternoon.

Ideas:

There are two ideas that might make sense here. One is related to the ideas of herd mentality meaning as others are doing we have and need to do it too. Sometimes there isn't any rational thinking related to herd mentality as some see other doing something so they need to do it too.

The other idea is related to the multiplier effect, meaning momentum, whether postive or negative, builds on other momemtum. 

There are been many physics studies that have ventured in the economic discipline realm that have looked at the idea of momentum and the ideas that momentun of some object or idea or variable, once it gets momentum is hard to slow down.

So maybe the same can be said for the slide of the Japanese yen over time. Once the momenturm related to the yens slide got enough momentum the slide has just keep going.

Article:

Against the backdrop of better-than-expected U.S. jobs data for May released late last week and soaring energy and food prices, the Federal Reserve is expected to raise interest rates aggressively toward the year's end to curb inflation.

In contrast, the Bank of Japan will likely maintain its accommodative monetary policy, with BOJ Governor Haruhiko Kuroda on Monday ruling out the possibility that the central bank will shift toward credit tightening anytime soon.

Ideas:

The Japanease economy and the US ecnomy might be two different organisms and maybe need to be treated differently.

The US economy, as big as it is, might be able handle some interest rate increases while the Japanese economy might not be able to handle any rate increases.

An interest rate increase, in some ways, seems like the opposite of what should be done as a strategy to curb inflation.

For example a rate increase might reduce the incentive to borrow money or even maybe use money in the economy. 

At the present time, inflation or more importantly supplier inflation and energy prices are increasing which is going make it difficult of many businesses which means it might become difficult for consumers the end users.

If inflation were related to increased consumer demand or increased consumer spending then maybe a rate increase would be good to reduce runaway consumer inflation or companies increasing prices because of an increase in consumer demand and spending.

But in the present situation the opposite might be true. Its not consumer demand but raw material costs and energy costs that are being passed onto the next in the supply chain which means consumers have to pay more.

So what if a small business needs a loan to pay for their increased supply or raw material costs and what are they going to do if an interest rate increase has increased the rate of the loan now. 

Most likely that small business now has to pass even that onto the next in the supply chain which means consumers might have to pay even more, which might mean they will become even less reluctant to spend in the economy.

So, in some ways a rate increase might not make sense for some or many.

It seems to the Bank of Japan understand these ideas and are deciding that its in the Japanese economies or Japanese socieities best interest at this time to increase interest rates.

Article:

Under its yield curve control program, the BOJ sets short-term interest rates at minus 0.1 percent while guiding 10-year Japanese government bond yields to around zero percent.

"Japan's economy is still on its way to recovery from the pandemic and has been under downward pressure from the income side due to rising commodity prices. In this situation, monetary tightening is not at all a suitable measure," the BOJ chief said in a speech.

Ideas:

So, just as what they said here, its not in the best interest at this time to increase rates.

Of course there are always positives and negatives for actions in an economy. A minus 0.1 and bond yeilds at zero percent might not be best for everyone in the economy.

Part of the underlying strategy has always been to get the large companies to use the money they have in the economy, for example by increasing the wages of their employees.

Kind of like a "use your money or lose your money" over the long term with the minus 0.1 percent and the zero percent bond yeild rate. 

But at the present time, the strategy still doesn't seem to be working as maybe some companies are just sitting on huge sums of money in the banks and not passing on some of it to their employees with wage increases.

The increase in commoditiy prices has maybe hindered some companies from increasing wages and they need to maintain a certain profit margin.

With the yen very weak and commodity costs increasing some companies might think they don't have enough room to increase wages at this time.

Article:

As the coronavirus pandemic hit the global economy from early 2020, many central banks in advanced countries eased their monetary policy as part of efforts to prevent extended periods of economic contraction.

Amid signs of economic recovery on the back of progress in vaccination against COVID-19 and stimulus measures, the Fed, the European Central Bank, the Bank of England and the Bank of Canada have recently been tightening their respective monetary policy stances, fueling momentum for yen-selling trades in view of interest-rate gaps between most advanced economies and Japan.

Ideas:

Becuase Japan and the other advance countries are on different monetary policy paths its enevitable that the yen is going to remain weak for some time.

The Japanese government and the Bank of Japan need to come up with some measures to ensure that as many companies and society is protected as much as possible, in case there is run-away yen deflation even more than what it is now.

Perhaps the Bank of Japan might decide it does finally need to increase the rate slightly to try and reduce the currency gap between the yen and other currencies.

In that case the Bank of Japan and the Japanese government need to work together to make sure that the rate increase doesn't have a negative effect in the Japanese economy.

And especially they need to gaurd against what it might do to business spending and consumer spending which potentially could be an incentive not to spend.

So again whatever the Bank of Japan and the Japanese government does there are going to be some positives and some negatives to their economic and policy actions.

Have a nice day and be safe!