Future JPY/USD rates

[Ax6isB]

Interesting this topic didn’t get revisited this fall/winter when the BOJ got involved in selling US treasuries to stop the devaluation of the yen. The BOJ was selling a pretty significant chunk of their reserves. I’ve no idea if they can/plan to replace that but this problem will re-appear when inflation comes back and the US Fed raises rates. Currently, I’m thinking inflation comes back in 2024 only based on history. The fed has historically eased their rates too quickly. Maybe this time will be different regarding inflation but the scenario of the BOJ trying to forever control the yen through printing yen and buying all the JGBs seems to me like it will end spectacularly at some point. I haven’t heard how Japan gets out of this scenario. Except “this is planet Japan” and that does seem to have a long runway…

[TJKansai]

Revisiting the topic now...
When I started this poll, only half of the respondents here thought over 130 would be a long-term thing, but now with rates at 144/USD now I am feeling 130 may be the new normal.

My USD credit cards have been getting a workout.

One the plus side, JPY investments have finally started perking up this year. Great as long as I don't need to buy USD.

[RetireJapan]

Revisiting the topic now...
When I started this poll, only half of the respondents here thought over 130 would be a long-term thing, but now with rates at 144/USD now I am feeling 130 may be the new normal.

My USD credit cards have been getting a workout.

One the plus side, JPY investments have finally started perking up this year. Great as long as I don't need to buy USD.

I'm torn on this, as our current investments are looking very nice in yen terms at this exchange rate, but future investments are going to suffer from the weak yen.

That is not actionable though -will continue investing monthly

[TokyoBoglehead]

Revisiting the topic now...
When I started this poll, only half of the respondents here thought over 130 would be a long-term thing, but now with rates at 144/USD now I am feeling 130 may be the new normal.

My USD credit cards have been getting a workout.

One the plus side, JPY investments have finally started perking up this year. Great as long as I don't need to buy USD.

They FED signaled future rate rises, this was the inevitable result.

We won't see a rebound until the US starts lowering rates.

Months? Years? ....

[captainspoke]

And with an upward GDP revision (= strong/hot economy), rates will likely go higher. As Uncle Jerry said, maybe even back to back hikes.

[sutebayashi]

We won't see a rebound until the US starts lowering rates.

Months? Years? ....

Speaking with my speculator cap on, last year the dollar came off in autumn after a weaker US inflation print. (It might have been a good excuse for speculators to take some profits towards the end of the year.) The fed might not cut rates until they see such data, so I will be watching for that as one possible trigger too.

The other side of the ledger is Japan policy. Folks here seem skeptical that Japan would ever raise interest rates. But if the yen does really have a spell, then I can see it happening. The British pound got a beating with the Truss budget plans last year. From my perspective Japan policy is even more profligate than the Truss budget proposal was.

Quitting YCC etc could help the yen a bit in the short term… should Ueda go for that…

[sutebayashi]

For sure, the effects of inflation have totally messed with the value of various currencies, so a nominal 100 dollar/yen rate of 10 years ago is thrown way out of whack and won’t mean the same thing should we ever see that rate again.

It’s always an interesting thing for me that, while the effect of inflation is to reduce the value of what that money can buy, the last couple of years are a good reminder that (usually) currencies go up in value with inflation, presumably because of the expectation of higher interest rates coming for that currency. The interest rate seems to overpower the loss of purchasing power, in the short term.

But in the long run any over-valued currency should get whittled down again, per theories I have read. (This assumes that inflation is low again.)

[Ax6isB]

If rates went up in Japan, how would that impact the payment of interest on debt? Since most JGBs are owned by the bank of Japan, would the impact be limited? I have to go look and see how other countries are managing this as there was crazy spending during Covid.

I think if rates did go up here, some company’s would implode. For example, Rakuten is already paying 12% on US issued debt. 12%!

[TokyoWart]

If rates went up in Japan, how would that impact the payment of interest on debt? Since most JGBs are owned by the bank of Japan, would the impact be limited? I have to go look and see how other countries are managing this as there was crazy spending during Covid.

I think if rates did go up here, some company’s would implode. For example, Rakuten is already paying 12% on US issued debt. 12%!

Rates rising doesn't change payments on the (very large amount of) existing JGB debt. I think the concern should be about rollover risk and how much of debt would need to be refinanced in the short term.

[Deep Blue]

TokyoWart is correct, and the weighted average maturity of JGB’s has crept up to around nine years. It’s smart to have lengthened this during the super low cost of debt era we’ve enjoyed.

However nine years isn’t that long and if yields do begin to creep up it becomes a bigger and bigger problem for the Government who already over-tax us and who want to spend a lot more on the military going forward….. not a nice position to be in although I think any rise in JGB yields will be at least accompanied with some nominal GDP growth, and maybe even some real GDP growth.