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Japanese yen hits lowest level versus U.S. dollar since 1998

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Yahoo Finance's Brian Cheung uses today's Chart of the Day to show how the gap between Japanese and U.S. benchmark yields are widening.

Video Transcript

[MUSIC PLAYING]

BRIAN CHEUNG: Well, it's that time. It's time for our chart of the day. And today, we're looking at forex markets, the US dollar versus the Japanese yen. We've seen a massive gap really between benchmark yields in Japanese and US dollar debt. And what we've really noticed is just a massive rise over the last month of the US to JPY. We really saw a peak actually this morning at around 135 Japanese yen to 1 US dollar. It's actually let up a little bit intraday so far. But either way, you cut out a slice of the keycode.

You've seen a lot of interest rate differentials as the Bank of Japan remains, essentially, stuck where it's at right now, and the Fed aggressively raises interest rates to get ahead of inflation. That's a big reason for what the movement we've seen in this space.

- And the Japanese yen at a 24 year low, I mean, is there a worst performing major currency? And we were talking about this off camera today, because, you know, in many ways, we've seen the governor of the Bank of Japan faced a lot of pressure to step in. I mean, the expectation seems to be, until it reaches 140 he won't. But in many ways, this is kind of out of his control, because it is about the Fed. It's not necessarily about what the BOJ does.

BRIAN CHEUNG: Yeah. And, you know, what's really interesting is that we were hearing so much before the pandemic about, is the Federal Reserve going to get stuck in a Bank of Japan like situation, where they can never raise interest rates? Well, obviously, the unprecedented inflation that we're seeing now making that a very different story. And in fact, if anything, this spells more trouble for the Bank of Japan, which has essentially been forced into doing more bond buying, more puts for the stock market spills in their domestic markets just to try to keep, not only their currency afloat, but really any sort of economic activity afloat.

- And it's been interesting to see the impact on some of these major Japanese companies, the car makers like Toyota, because this actually helps them, right, it inflates the value of the profits abroad. So while they face a lot of headwinds back at home, this is never good to have, you know, 134 to the dollar.

BRIAN CHEUNG: Right.

- But in some ways, it's given them a little extra padding.

BRIAN CHEUNG: Yeah, it gives those with US dollars more purchasing power. But at the same time, you see what it's done to American corporates like Microsoft dramatically downgrading their growth expectations over the next few quarters because of the conversion rates. That hurts.

- Yeah. 140, will it go to 140 is the question.

BRIAN CHEUNG: We'll see.

- Yeah. Down 15% this year so far. We'll continue to watch that. But--