Looking to travel to Japan soon?

Now is as good a time as ever to trade in your Singapore dollars, as the yen has tumbled to 116.02 yen to S$1 as of Apr. 27, 2024.

According to Google Finance, the yen hit a historic, 34-year low of 116.19 yen to S$1 on Apr. 26, 2024, before sliding back up on Apr. 27 to 116.02 Yen to S$1.

Weakening yen

The yen has been steadily weakening since Mar. 2024.

On Mar. 22, the yen plunged to a then 34-year low of 112.85 yen to S$1.

This was due to downward pressure exerted by the large interest rate gap between the U.S. and Japan, making the yen relatively less attractive to investors.

This fall came despite the Bank of Japan's raising of interest rates for the first time in 17 years. A rise in interest rates typically leads to a stronger currency.

All the same, on Apr. 11, the yen dipped again to 113.21 Yen to S$1.

As of Apr. 27, the yen currently sits at multi-decade lows, Reuters reports.

U.S. holds off on rate cuts

The yen's fate is partly determined by whether or not the U.S. proceeds with its planned interest rate cuts.

Understanding the yen's fate thus requires a brief detour to the United States.

U.S. Federal Reserve Chair Jerome Powell indicated back in Mar. 20 that he was looking to cut interest rates three times in 2024.

As Financial Times (FT) put it, given market sentiment that inflation was finally under control in the U.S. back in late 2023, investors initially speculated that there would be multiple rate cuts in 2024.

However, on Apr. 3, Reuters reported that Powell was not completely sure that inflation was, as previously forecasted by investors, en route to dropping to the Federal Reserve's stated target of 2 per cent.

Since inflation data was coming in "higher than expected", the Fed was holding off on rate cuts till data could securely indicate that "inflation is truly controlled".

Moreover, given that U.S. inflation has since risen, hopes of rate cuts anytime soon have diminished. According to FT, "the great bet on rate cuts — and it was enormous — is dead." 

Hence, with the greenback surging in value, and the interest rate gap between the U.S. dollar and yen remaining large, downward pressure on the yen has been mounting.

This, in turn, has led to a 34-year-high of the greenback against the yen as of Apr. 27, according to Reuters.

It remains to be seen whether the Bank of Japan will intervene.

Reuters reported that "market participants were on alert for possible intervention from Japan to prop up its currency," meaning that there is speculation that the Bank of Japan will intervene to prop up the yen. 

This, however, seems unlikely. As Nikkei Asia put it, "the U.S. interest rate outlook suggests there is little Tokyo can do to change the overall direction of exchange rates."

Tourists gain, locals lose

A weak yen is great news for Singaporean tourists. It means that our dollar has more purchasing power in Japan.

It is also good for Japanese exporters earning stronger, non-yen currencies.

For Japanese locals, however, a weaker currency means a higher cost of living. With the yen's purchasing power weakened, Japanese locals are likely to tighten their purse strings even further.

Top photo from Unsplash.