Down, Down, Dollar is Down

(If that title seems weird, try singing it to the Coles supermarket tune.)

This is what the Aussie has been doing with itself for the last 3 months. Looks like it has been officially rejected from the glamour club of world currencies.

Dollar vs JPY
AUD vs JPY over last 3 months

A couple of weeks ago I attended the meeting of the Nagoya International PC Club, and no-one had anything good to say about the rise of the Yen. A Japanese attendee who makes a living selling kimonos on e-bay said he could not raise his prices or this American and European customers would stop buying. A Polish developer lamented the fact that he was being paid in British Pounds, a currency which has fallen 50% against the Yen in since 2007. The American attendees were kinda annoyed too, given that their USD holdings have also declined significantly compared to the Yen.

What none of us could work out is why is the Yen so strong? Interest on savings in Yen is abysmal. The best we could come up with was that Japanese believe it is patriotic to hold government bonds and keep their significant savings in Yen in a local bank. Or perhaps that the sudden recent increase in the Yen was due to people getting out of the carry trade because they’re worried that their investment currency will tank.

Share your wisdom in the comments!


3 thoughts on “Down, Down, Dollar is Down

  1. Peter

    There are two conceivable reasons for the Yen’s continued increase in value. The first is Japan’s trade surplus. In spite of an appreciating currency, the Japanese export sector continues to be the lone bright spot in an economy with otherwise limited sources of growth. Many foreigners who buy Japanese Yen continue to do so because they must – to trade.
    The second source of demand for Japanese Yen is so-called safe haven flows. While the Japanese Yen is not a high-yielding currency, it is actually an excellent store of value.
    Over the last 15 years, inflation has been 0%. In other words, even if they have invested in very low interest rate accounts, savers can ensure that 1 Yen today will probably still be worth 1 Yen, or more, in 5 years time, due to continuing trade surpluses that create more demand for the currency than sellers. You can’t rely on that with currencies of countries with inflation and trade deficits, eg. USA, UK, Australia…. (This is a simplified and altered quote from!)

    1. And I can confirm your second point, at least anecdotally. The price of a train ticket to Nagoya is still 190 yen, a coffee at Komeda is still 380 yen, the casual wage at McDonalds is still 820 yen – all the same as when I first came here in 2003.

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