The Japanese yen has had a difficult year so far. Since 25 January 2022 alone, the Japanese currency has fallen by more than 12% against the US dollar. This is a drop in value that we only know from currencies such as the Turkish lira.
The last time the USDJPY reached the 140 mark was in 1998. Currently at more than 131, we have reached the weakest level since 2002. This is a result of the statements of the Japanese central bank, the Bank of Japan, which continues to maintain its low interest rate policy while other central banks such as the American Fed or the British Bank of England have already raised their interest rates and want to continue to do so.
Analysts do not agree whether it is time for the Bank of Japan to intervene actively in the market or not. Reports range from a possible USD 100 billion to be pumped into the market according to the Bank of America, while other analysts believe that no intervention will take place because a weak yen will help an export-oriented Japanese economy.
But what if this extreme yen weakness is only temporary?
Around the world right now, a mix of inflation, rising interest rates, or ongoing problems with global supply chains threatens to lead to widespread recessions. The American economy and the US dollar are not immune to such a scenario.
If the US Fed fails to curb US dollar inflation, investors will look to other currencies. In such a scenario, the Bank of Japan could give in to market pressure and allow bond yields to rise and prevent the yen from plummeting further.
Japan is still fully under the spell of Covid compared to most other top economies and has not been able to benefit from the recovery we have seen in many Western nations. But in the second half of 2022, it will probably open up to the world economy and also to tourism again step by step.
Japan knows the term "inflation" only from history books. The effects we see in Europe and the US are not working in Japan and if the Covid restrictions ease, there could be a strong upswing in the Japanese economy Then Japan would look very attractive as a market and rise like Phoenix from the ashes.
With lower inflation, rising bond yields and a strengthened economy, Japan could present itself as an interesting investment destination for investors looking to keep their capital safe.
We will be watching closely to see how many investors head for this haven.