The dollar hits a 20-year high against the yen
The greenback soared on Thursday. It will now buy more than 130 yen — a level not seen since mid-2002 — in an illustration of the dollar's growing muscle.
Driving the news: The surge against the yen came after the Bank of Japan stuck to plans to keep interest rates low, despite an increasingly inflationary global backdrop.
Yes, but: Japan, with its decadeslong battle with deflation and rapidly aging demographics, has seen much more muted price increases than the rest of the world.
- In fact, its latest inflation report showed just a 1.2% rise in annual inflation, still far below the Bank of Japan's elusive goal of 2%.
How it works: Currency values are sensitive to the discrepancies between the central bank interest rate moves in different countries. All else equal, if a central bank is boosting rates — as the Fed is — those higher rates attract capital from countries like Japan where interest rates look likely to stay low.
- Those dynamics have pushed the dollar up and the yen down sharply in recent months.
The intrigue: The Bank of Japan seems to believe the weak yen will be a boon to the country's powerful export sector.
- But with fuel costs soaring — Japan is a massive energy importer — it also can be costly for consumers and politically sensitive. And if supply chain snarls are hampering exports, a weak yen won't do much to set off a boom in sales.
What we're watching: Japanese export data, which has been on a roll recently, though not enough to offset the surging cost of energy imports.