Japanese Yen Challenges:

Article Source: https://mainichi.jp/english/articles/20220902/p2g/00m/0bu/019000c

Article:

TOKYO (Kyodo) -- The Japanese government warned Friday of fallout from the rapid depreciation of the yen after the currency slumped to a fresh 24-year low against the U.S. dollar, saying it is prepared to take "appropriate action" to bring stability in conjunction with monetary authorities in other nations.

Volatility in currency markets has been "increasing somewhat," Finance Minister Shunichi Suzuki said at a press conference, adding that the government is watching foreign exchange moves "with a heightened sense of vigilance."

Ideas:

Companies don't like volatility in the currenct markets has it would rather the markets be one way or another so they can prepare correcly if sudden changes to happen.

Also, some or many companies don't have the resources to leverage agaisn't too much weakening or too much strethening, like the large companies do.

Just the dumping of extra yen into the market and or currency swaps might not be enough to stabilize the market at this point.

At this point the Japanese market currency situation has become too much for some and unfortunately the best thing might be just the riding out the situation the thing companies can do.

Article:

"We have an agreement by the Group of Seven and others that excess volatility and disorderly movements in exchange rates can have an adverse impact on economic and financial stability," Suzuki said.

Aggressive interest rate increases by the U.S. Federal Reserve have weakened the yen against the dollar, as the Bank of Japan has stated it is not planning to change its ultralow rate policy. The Fed is expected to continue raising, putting further pressure on the yen.

The U.S. dollar was trading in the lower 140 yen zone on Friday.

Ideas:

The Group of Seven might say one thing but in reality the markets will continue to fluctuate as long as the US Federal Reserve continues to increase its rate and the Bank of Japan continues to keep its policy as is.

There is too much of a variance between the US dollar and the Japanese yen and as such there is will continue to weaken the yen over time, despite any attempts to dump yen into the markets or use currency swaps to stabilize the situation.

If there by some chance this is a game between central banks to see which is correct, it seems that the Bank of Japan or more importantly the Japanease economy and some Japanese companies are the losers in this situation.

But at the same time despite all of the US Federal Reserve increases have not really made that much of a dent yet in the inflation situation in the US.

So which strategy is correct in trying to manage inflation is still a question to be answered at this time.

Article:

A weak yen is a double-edged sword for Japan as it helps exporters by boosting their overseas profits when repatriated but it also inflates import costs for energy and other raw materials, a headache for resource-scarce Japan.

Japan's top government spokesman Hirokazu Matsuno reiterated that currency moves should be stable and reflective of economic fundamentals, adding, "Rapid fluctuations are undesirable."

The yen's breach of the psychologically important 140 line is seen by some currency market analysts as a sign further falls could follow, with U.S. economic data coming into sharper focus for any clues to the pace of further rate hikes by the Fed.

Ideas:

The Bank of Japan of course knows that a weak currency is good for Japanese exporters as it brings more yen into the Japanese currency account.

So most likely the Bank of Japan has taken cost/benefit approach meaning it sees the benefit for the exporters as a better choice at this time instead of trying to increase rates to make the yen equal or somewhat equal to the US dollar.

At some point, say at 145 or even 150 for the yen the Bank of Japan might begin to signal enough is enough and start to make some changes.

Again too many fluctuations are not good for companies as they need to time to protect themselves against the rapid changes in a currency.

If the yen would remain at 140 and not change again for a while companies could then make the changes needed in the markets and the economy to better help their situation.

But sudden or continous changes don't help companies as they don't have the resources to change everytime the currency markets change.

Have a nice day and be safe!