On Wednesday (July 12), the Financial Times published a guest column by me on the yen's weakness. The recent gyrations of the yen show how much, and how quickly, its value depends on changes in the interest rate gap between US and Japanese 10-year bond yields. When I wrote the column, that gap was rising, and, as a result, the yen was weakening so fast that the Japanese Finance Ministry was threatening intervention to shore it up. By the time it was published, three news events caused the rate gap to narrow, which, in turn, caused the yen to regain some of its lost value.
          In the US, weaker-than-expected jobs growth as a bigger-than-expected decline in inflation led the market to expect that the Federal Reserve would not raise interest rates as much as the market previously expected. That changed anticipation led to a fall in the 10-year Treasury bond. In Japan, a misreading of the May wage figures led to expectation by some players that the Bank of Japan might let interest rates rise sooner than previously expected, perhaps as early as its meeting this month. I'm not a professional forecaster, but I'd be very surprised if the BOJ moved that quickly.

        In the longer run, the main cause of the Yen's weakness--in real terms, adjusted for price changes in Japan and its trading partners--is the declining competitiveness of Japan's exporters in products like electronics, machinery, and even autos in the era of electric vehicles. The real yen is the weakest it's been in a half-century, according to the Bank of Japan.

To read the column, see https://richardkatz.substack.com/p/my-financial-times-oped-on-the-yen

Richard Katz