​Yen's Ups and Downs Bring Volatility

Adam Smith | FlashRatings | Thursday, September 15, 2016 6:37 PM EDT
Just a few years after Japan's Prime Minister Shinzo Abe moved to
bolster the nation's economy in part by successfully lowering the value
of the yen and thus lowering the cost of Japanese goods and increasing
businesses' competitiveness overseas, that tool is losing its edge.

The Japanese currency is continuing its climb back up, and yesterday
rose to about 102 yen per dollar. For some perspective, on Dec. 1 of
2015, $1 could buy about 123 yen, meaning you could get more Japanese
goods for your buck than you can now. And if you go back further, before
the Abe's reforms were implemented, in December of 2012, the opposite
were true: A dollar could only get you about 77 yen.

While that may sound like only the stuff international travelers would
worry about, the yen's ups and downs have ripple effects throughout the
global economy. For one, as the yen regains its strength, the Nikkei
index is going in the opposite direction, feeling sapped and closing
down 209.23 points, or 1.26 percent, yesterday -- its lowest point since
Aug. 26.

All this is creating uncertainty for Japanese equities investors, as
they they wait to see whether the Bank of Japan will decide to get
involved again. Reuters reported Monday that the nation's central bank
may be looking at ways to lower short-term business costs and protect
banks – moves that could be announced next week.

The change in the yen's value also weighs in on trade – as the cost of
Japanese products go up and down – and on mergers and acquisitions, as
Japanese company's find themselves able to buy more or less. Japan's
largest drugmaker, Takeda Pharmaceutical, for example is now looking to
shop around for big deals in the U.S., according to a report by Reuters.