Yen hits a new 40-year low
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The value of Japan's currency just hit its weakest level against the dollar since 1986.
Why it matters: A few market forces are colliding here: higher energy prices from the Iran war, concerns that Japan's central bank is behind the curve on raising interest rates and pressure from a stronger U.S. dollar.
By the numbers: 100 yen now gets you only 62 cents — the lowest level since late 1986.
- On the flip side, if you're an American, it's a good time to visit — one dollar now buys 162 yen.
How it works: Japan imports most of its energy, and oil is priced in dollars. So, when oil prices rise, Japanese companies need more dollars to pay for energy — so they sell yen to get greenbacks.
The big picture: Interest rates in Japan are still much lower than in the U.S. Japan's benchmark rate is about 1% — a 30-year high, but far below U.S. rates. That gap draws more investor demand for dollars than yen.
- Japan has an enormous amount of debt, and some argue that it is trying to keep rates low to manage the situation.
What to watch: Whether the Japanese authorities step in again to prop up the currency by selling dollars and buying more yen, as they did earlier this year.
The intrigue: The weaker yen comes even as the Japanese stock market is booming on the AI trade.
- You'd think that would raise demand for yen, but no.
- According to the Financial Times, traders buying Japanese equities are also hedging their exposure to the yen, which can add to the selling pressure.
