Pictured: You enjoying the beautiful sakura beneath a pastel blue sky
While the entire of Japan has been seeing the Sakura blossom throughout April, the Japanese Yen continued to depreciate following the announcement from the Bank of Japan on maintaining its current interest rate. With that, the JPY/USD fell to a 34-year low of 156, a price level last seen in May 1990.
From the perspective of export business, the weakening Yen helps large Japanese companies with global operations, as the value of their repatriated overseas profits also would increase accordingly.
The weak Japanese Yen increases the buying power of foreign tourists, boosting the country’s already established status as a popular destination, and even exceed pre-pandemic levels. Combined with the cherry blossoms happening from March to May every year, the streets of Kyoto are filled with more tourists than ever. Bloggers speak about how visiting Japan feels cheaper than other first world countries such as Switzerland, Australia or New Zealand, and this is particularly true for tourists whose income are denominated in the US Dollar or Euros.
If you must ask whether this is a good time to take a vacation to Japan, the answer is a resounding yes. Book that flight, pack your bags, go – while the cost is still relatively low.
On the downside, a soft yen makes imports of energy and food more expensive, hitting domestic consumers hard. Although in March 2024, big companies in Japan agreed to raise wages by 5.28%, which is also the heftiest in 33 years, consumption remained soft and there is much more room for the Japanese Yen to improve.
BoJ governor Kazuo Ueda has stated that the overall policy settings of Japan will remain accommodative, meaning there will not be a major interest hike unless inflation runs hotter than expected. The key point to be observed will be whether consumption recovers.
That will largely depend on the trajectory of the interest rate gap.
What governor Ueda said seems to indicate that the rate gap between JPY and USD will remain wide. If such measures were to be maintained, it is no surprise that the selling momentum of the JPY will continue, while strengthening the USD.
On the flip side however, there is a slight rebound of the JPY after Fed chairman Jerome Powell indicated that the US central bank will maintain its plan of cutting rates three times in 2024 despite bumpy inflation. Such dovish move by the US Fed will tighten up the rate gap later in 2024 and would support the strength of the JPY.
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