USD v. JPY
 

Has anyone else looked with alarm at the USD's dive in the last three days against the Yen? It is down to 112.6 this afternoon. It was as high as 123 last month and 118 just three days ago. I know no one can forecast the future but I sure wish I had seen this coming and had transferred money from USD to Yen earlier this week for September rent. :(

Anyone with professional insight that might give a short term prognostication?

Marc

Alarm? No, I'm looking at it with unbridled joy. I'm long yen, and the profit pool at the end of the year is based on the leftover in USD not in JPY, so over the last two weeks, our profit pool went up 30% (10% appreciation and 30% gross margin) without lifting a finger.

I was under the impression that the JPY was undervalued at the 123 range. Considering that most other currencies have been strong against the greenback of late. The USD is weak and this is reflected in the recent rate (also the loan/liquidity problems, not to mention the ongoing stock market correction). In the past 17 years the USD has been in the low range of 78+- Yen all the way to140+- Yen.

The yen has started to firm up against the pound, good thing too! It's bad enough that my circumstances are draining the Japanese coffers, a strong pound against a weak yen has really been putting the boot in.

For those of us that get paid in yen, it's wonderful.

Alarm and perhaps surprise at the extent and speed of the drop, but not surprised that the market realized 123:1 was undervalued.

I'm far from a professional in the field. But such a fast swing in the yen in particular could have resulted from two causes I can think of: 1) BoJ suddenly deciding to stop buying dollars as a reserve currency (doubtful); 2) large unwinding of the carry trade whereby hedgies and others borrow in yen at low interest rates and invest in relatively high-interest-rate economies that have sufficient liquidity, such as New Zealand. The carry trade has been blamed for depressing the yen and pumping up the NZ$, among other currencies. If those currencies are moving too (in the opposite direction), it's likely the carry trade unwinding.

Or there could be a completely different reason.

I'm sure when the dust settles, the explanations will come to light. We haven't heard the last of this, for sure.

And as one paid in dollars planning to spend yen later this year, yeeeeaaaahhhh, not real happy with the news.

Transfer now. My opinion is that it will hit 110 by next Friday.

Please bear in mind that I am not Alan Greenspan, nor do I play him on teribi.

well, the fed just cut interest rates, so who knows if the swing will start to trade back the other way. but in any event, it's times like these that i like being paid in the local currency. just makes things a lot easier.

Its interesting how we all have such different perspectives based on how we are paid and how we pay our expenses. This couldn't have come at a worse, or better, time for me as my COLA is adjusted based on the exchange rate on the third Friday of the month. Unfortunately, it is going to really depend on whether they use Friday Tokyo time (based on 114 Yen per USD) or Friday EDT (based on 111 Yen per USD). If they use the latter, I think I will come out ok even if the USD drops to 110 or below in the future. My problem is that I let my Yen account get too low wherein I didn't have the flexibility to "wait out" a short term downturn.

Thanks for all the insight.

Marc

I'm no mathastataeconomy guy, but I've seen worse in the past.

Agreed, but you're likely to see it worse again IMHO.

I don't want to turn this thread into an OMNuts discussion so I'll table the issue unless someone cares for a mabo-Roti "experts panel". :cool:

Wasn't it the Japanese who were the major financers of the U.S. deficits until China took on that role? At any rate in the mid-early '80s, the JPY was worth some 220-240 per USD in the '80s. Following some U.S. pressure to revalue, the JPY drifted up to the JPY 150-160 range by late 1985 through '86.

Given relative costs in the two countries, my view is that Japan is fairly priced against the U.S. for a short term visitor at around Y110=$1.

Ahhh! Don't jinx me. I am already crying over the lost 128:1 that I saw a month ago. I'll have to buy some in the next month or so and 110:1 will just break my heart - among other things.

JR

I agree.

All the price comparisons I've made in the past year are based on a
200yen to £1 exchange rate
and a
100yen to a $1 exchange rate

Even though it's been 230yen to a £1 for a while now. This has forced me into thinking of things as being more expensive than they are and I believe the costs are still very reasonable for visitors even with this less than favourable fabricated exchange rate.

All my Japanese contracts are fixed in dollars, so it doesn't matter to me. :)

I interpreted that to mean that the strong yen trend would accelerate. But I'm no expert in these things.

When it comes to exchange rates, I prefer to digest mine as burgernomics:

http://www.economist.com/markets/Bigmac/Index.cfm

According to Big Mac theory, the yen's fair value is around 82 to the dollar, so at 122:1, it was considered 33% undervalued -- the world's most undervalued currency, at that. A reversal has been long overdue, and while I don't think we'll see 82:1 anytime soon (unless the dollar really collapses!), it's worth remembering that it's only been a little over two years since the yen was almost at 100:1...

Did you take into account the significant (10-15%) price increases at Tokyo McDonalds this summer?

Marc

According to an article in the latest Economist, institutional investors are indeed starting to unwind some carry-trade positions. The NZ$ is reportedly weakening dramatically relative to the yen. But the legions of Watanabe-sans (a new term for my eyes, apparently a reference to the "soccer moms" of Tokyo who invest family savings) have not started unwinding their own, often highly leveraged, carry-trade positions. If and when they do, the yen will gather yet more strength as they dump foreign currencies and re-purchase yen. Not good at all for dollar-earners spending yen. :(

Link to the article.

We're also looking forward to the Yen returning to more reasonable levels, although that might spell trouble for the economy as a whole (see this other Economist article).

There was a time during the early 1990s when the yen actually went above 100 yen = US$1.

As one who works for Japanese clients and gets paid in yen, I'm happy to see the yen rise. It's been tough lately with the undervalued yen.

Even with the higher yen, Tokyo is still not outrageously expensive. One of the best things about Japan is that you can go quite far into the low-price ranges and still not have to worry about cleanliness or safety. An 8000 yen single in a business hotel will be small and Spartan, but there will be no mold in the bathrooms or drug addicts in the hallways. A 1000 yen lunch in the basement of an office building is quite affordable.

My tongue was ever so slightly in my cheek when I posted the previous reply, but...

That would actually strengthen the yen in comparison, so if they increased prices and the burger is still cheaper, then it's really undervalued.

FWIW, the latest burger index dates from July 5th and gives a Big Mac's price as Y280 (= $2.29), compared to an average of $3.41 in the US, thus making the yen 33% undervalued.

its getting back. Back to114.3. Its probably best not to rely on any currency forecasts. Just last month the talk was a 120-124 range. I like a 112-115 range, just a personal "fair value" calculation.

The least credible of all forecasters are the investment bank currency analysts and traders. I don't even know why they bother saying anything, they're always wrong, not just a "little off" but very often directionally incorrect. They must be earning their keep some other way, because if they did so on forecasting, I'd rather pay Smidgen to raise his left paw if the yen is to appreciate, and his right paw if it is to depreciate. I'm sure his accuracy would be better than that of the talking heads.

Ah yes, but then Smidgen is a very astute and discerning neko. :)

Perhaps they are in the dis-information business? @:-)

The culture of short-term institutional greed in the US appears to be alive & well. Financial companies are stepping in to buy discounted stakes in the high-risk loan companies.

The sub-prime mess isn't completely over & (IMHO) it's just a matter of time before the results of this scare will be evident in the US economy. Until then, I step back from my 110 prediction for this week.

The ¥/$ exchange will stabilize back in the 114-116 range and stay there until the ripples from the liquidity mess start taking hold. Maybe in the 6 month - one year timeframe, but who knows?