ly down to the wide gap between American and Japanese interest rates. Even though the Bank of Japan raised rates to their highest level since 1995 in June, they’re still only at 1% – way below the US at 3.5% to 3.75%.
▶ That means global investors can borrow yen cheaply, and park that cash in higher-yielding investments abroad. And that pushes the currency down, as folks sell it to buy into those opportunities outside of Japan.
▶ So the country’s stuck between a rock and a hard place. It could buy more yen or hike interest rates. But the former just buys time and doesn’t fix the actual problem, while the latter risks knocking back an economy recovering from decades of sluggish growth.
Zooming out: A weak currency creates winners and losers.
A weaker yen isn’t bad for everyone. Japan’s carmakers could get a $5.8 billion profit boost this year, since their overseas earnings are worth more once converted back into yen.
⚠️ But households and import-heavy businesses are paying more for fuel, food, and raw materials. That’s why a falling currency can push stocks higher even as consumers feel worse off – and why exchange rates rarely hit every part of an economy equally.