what is that: The variables of interest among Japanese manufacturers and their North American subsidiaries take into account everything from top-line revenues and production costs to import-export plans and investment strategies. Foreign exchange rates are often the determinant of success or failure, especially for Japanese automakers, which operate globally and rely heavily on international trade. Few things are more important than the rate that governs the conversion between the Japanese yen and the dollar, the currencies used in the US market.
Where did you come from: The yen dollar exchange rate is determined daily by currency traders around the world who buy and sell currencies in real time. The strength or weakness of one currency relative to another can be determined by a variety of inputs, including interest rates, economic growth, inflation, political instability, trade deficits, and even government intervention in the market. This year, the yen plunged against the dollar to his 30-year low. Investors gave up Japanese government bonds in favor of US Treasuries as US interest rates rose.
how to use: A general rule of thumb is that a weaker yen is good for Japanese automakers. That’s because when that money is repatriated to the Japanese parent company and converted to yen, the value of dollar-denominated sales from the US increases. Furthermore, the weaker yen tends to support exports from Japan. This is because Japanese manufacturers can charge less in dollars, but still get the same amount in yen.
Possible exploitation methods: A dramatic yen depreciation could also be a double-edged sword, as it would also increase the cost of importing dollar-denominated raw materials and components into Japan. In today’s environment of skyrocketing inflation, a stronger dollar combined with a weaker yen is hitting these importers double.