A weak yen supports the global carry trade
- Long-term trend: The chart shows a clear downward trend for the Japanese Yen Futures, indicating ongoing yen weakness against the US dollar.
- Recent performance: The yen has fallen significantly in 2024, with sharp declines in January (-2.87%) and March (-4.44%).
- Central bank impact: The lack of rate hikes by the Bank of Japan is likely contributing to this weakness. While other major central banks have been tightening policy, Japan's continued loose monetary policy is making the yen less attractive to investors.
- Global implications: A weaker yen can be seen as "saving the world" in several ways
- It makes Japanese exports more competitive, supporting global trade.
- It allows Japan to maintain accommodative policies, providing liquidity to global markets.
- It helps prevent global deflationary pressures by keeping the yen from appreciating too much.
- Future outlook: The red arrow pointing downward suggests expectations of further yen depreciation.
- Volatility: The chart shows significant price swings, particularly in recent months, indicating market uncertainty and potential for further volatility.
- Historical context: Compared to previous years, 2024 shows more consistent yen weakness, contrasting with the mixed performance in earlier years.
- Global carry trade: A weak yen supports the global carry trade, where investors borrow in low-yielding currencies (like the yen) to invest in higher-yielding assets elsewhere, stimulating global financial flows.
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