[po]

> The yen is at a 34-year low against the U.S. dollar

I live in Japan and this has happened so quickly it's been stunning. While not much has changed domestically so far, I am hearing and starting to see foreign people question whether they could work and live here long term if it stays like this. It's fine if you are earning USD and visiting Japan (wow there are so many tourists this year) but if your salary is priced in JPY and you plan to retire in the US, it's basically impossible right now.

My understanding is that most of the pain in JPY is being caused by carry trades by the financial sector. Because they are very common currencies and most traders right now believe that both the US and JP are stuck with a wide spread in interest rates... you can borrow JPY and invest in USD and make 4-5% on it.

As an aside, I also wish we didn't use the terms strong/weak for currencies because it carries a good/bad connotation. It's just high/low and there are pros/cons to each.

[resolutebat]

The other side to this is that after decades of zero to negative inflation (deflation), prices in Japan are finally starting to go up. My personal economic barometer, the Yoshinoya nami gyuudon beef bowl that was 280 yen from the 1990s straight through to the mid-2010s, is up to 448 yen at last check. Not by coincidence, their primary ingredient is imported beef.

Japanese salaries, however, are by and large not going up (certainly not at the same rate), which is obviously causing even more pain and further dividing the haves from the have-nots.

[CalRobert]

I have a similar concern as an American living in Europe for the last ten years. It was OK-ish when I could work remote and price myself in USD but given the softness in the software job market and the very weak Euro (combined with very low pay in Europe in general) it does make it harder to consider ever being able to move back.

[caeril]

> is being caused by carry trades by the financial sector.

This is a solid short-term explanation, but there's always an investment sector focused on the long term, and those guys are looking at the demographic disaster Japan will inevitably experience.

Carry trades and yield arbitrage explain a lot, but the Hikikomori are wrecking the Yen over the long term.

[relaxing]

Thanks for mentioning the strong/weak terminology. It really impedes laypeople’s understanding of economic issues.

[marak830]

So quickly so, that I was considering buying a new PC costing about 450,000yen, now it's over 500,000 and I'm putting it off. (For comparison I could get this for approx 3k USD).

[bamboozled]

you can borrow JPY and invest in USD and make 4-5% on it.

I have JPY, can I make money on it, or do I need to borrow it? Is the idea here to buy USD, wait for the price to go up, and then sell it back in JPY?

[danielheath]

A spread on interest rates means you can e.g. borrow some JPY at 2% interest, spend it to purchase USD, then loan the USD to someone else at 6% interest.

After you pay back the 2% interest to the original lender, you're left with 4% as profit.

This usually happens when one government pushes banks for lower interest rates (to stimulate the domestic economy).

It creates a large volume of trades buying USD with JPY, and by doing so causes the JPY currency to become less valuable relative to USD.

[po]

This is exactly right, and also demonstrates why the Japan is in a bind.

They don't mind the currency going low as it helps exports but going too low, too fast is a problem. Increasing interest rates to narrow the spread will affect the economy. So they are walking a very tight line here between JPY/USD spreads and domestic economy/interest rates. All global economies are to some extent but since JPY is trusted and has had low interest rates for decades, it's popular within the finance industry for this kind of trade.

[brutus1213]

What happens if the JPY appreciates against USD? Do investors hedge this (I assume this incurs a cost) or do they do this "naked"?

[po]

If JPY appreciates against USD they don't make money or can even lose money. I'm sure there is some hedging going on, but I don't know for sure the mechanics of it all: https://www.thebalancemoney.com/yen-carry-trade-explained-pr...

[skybrian]

It’s not a risk-free trade. Borrowing yen and buying dollars is effectively shorting the yen (relative to the US dollar). The investors who did this before made money because the yen dropped, but maybe they will want to take profits, which would tend to strengthen the yen.

Borrowing yen now to buy dollars is sort of like shorting a stock when the price already dropped. The interest rate difference makes it a cheaper bet, but it’s still a bet and could go bad if the yen strengthens.

[caf]

In the early 1980s, a couple of Australian banks took advantage of very low Swiss interest rates to offer a series of apparently cheap loans to small businesses and farmers, with the catch being that the loans were of course denominated in Swiss francs.

Within a few years, those borrowers (whose income was naturally denominated in Australian dollars) got a very painful lesson in that risk, when the exchange rate between the Australian dollar and the Swiss franc moved significantly, putting them very much underwater on those loans.

(This became known as the "Swiss loans affair", with allegations that the banks in question had in many cases not adequately informed the borrowers of the risk).

[po]

As a retail investor, you can do Forex trading or you could do time deposits at a Japanese bank (assuming you live here). SMBC Prestia is offering 6.5% on it right now for example:

https://www.smbctb.co.jp/en/timedeposit2404/?icid=24_en_top_...

[bamboozled]

Awesome, thanks for much for the info.