[Summary] Investment strategies when the yen depreciates
There are probably many people who want to know what impact the depreciation of the yen has on the market and economy, and what kind of investment strategies are effective when the yen depreciates. In this article, I will first explain what depreciation of the yen is in an easy-to-understand manner, and then respond to readers' interest by outlining the causes of depreciation of the yen, the economic and investment effects brought about, and effective investment strategies when the yen depreciates.
The depreciation of the yen is easy to understand
The depreciation of the yen indicates a state where the value of yen, which is the currency of Japan, declines compared to other currencies. Normally, the Japanese yen weakens relatively compared to other currencies, which means that the exchange rate of yen in the foreign exchange market falls.
An appreciation of the yen is a state where the value of the Japanese yen rises compared to other currencies, indicating an increase in the exchange rate of yen in the foreign exchange market. The difference between the depreciation of the yen and the appreciation of the yen is that if the exchange rate of yen falls in the foreign exchange market, the yen weakens, and if it rises, the yen appreciates.
Why did the yen depreciate, and why did the yen depreciate and dollar appreciate?
The depreciation of the yen and the appreciation of the dollar usually occur at the same time. It can mainly be caused by factors such as:
➬ 1. Strength of the American economy: When the US economy is doing well, the US dollar tends to strengthen. This indicates that the dollar will be higher against other countries' currencies (including yen).
➬ 2. Differences in interest rate policies: When America's interest rate policy is tight compared to other countries, such as the US Federal Reserve (Fed) raising interest rates, this is a factor in the depreciation of the yen and the appreciation of the dollar.
➬ 3. Investment movements: When investors' demand for American assets increases, this may raise demand for the US dollar and create a situation where the yen depreciates and the dollar appreciates.
➬ 4. International instability factors: As global instability factors and geopolitical risks (such as the Ukraine war and the Israel-Gaza war) increase, investors may flee to the US dollar, which is a relatively safe asset, and this strengthens the dollar.
However, these relationships are complex, and other factors also influence. Since various factors act simultaneously in the foreign exchange market, the depreciation of the yen and appreciation of the dollar may be temporary.
When did the depreciation of the yen begin
Broadly speaking, it can be said that the current trend of depreciation of the yen began around 2022/3. The depreciation of the yen progressed from around 114 yen per dollar until 2022/2 to 121.8 yen at the closing price on March 22. The reason behind this is that America switched to monetary tightening from 2022/3, and interest rates have been raised. As a result, the attractiveness of the dollar increased, and investors were more likely to buy dollars by selling yen. Meanwhile, Japan continues its monetary easing policy and maintains a low level of interest rates. This reduced the attractiveness of yen, and is a result of increased pressure on the depreciation of the yen and appreciation of the dollar. A combination of these factors led to the depreciation of the yen progressing. In 2023/10, it temporarily rose to close to 150 yen per dollar, and although it then returned to a slightly higher direction, the trend of depreciation of the yen continues.
How long will the depreciation of the yen continue
There is widespread concern that the yen will continue to depreciate until 2024. However, although it is difficult to accurately predict when the depreciation of the yen will end, there is a possibility that the announcement at the last US Federal Reserve (Fed) FOMC meeting in 2023 will be a clue.
I also want to read:American Fed Policy Rate (FOMC) Explanation
There are a wide range of factors affecting the depreciation of the yen, and it is not easy to stabilize the international economy. In such a complicated situation, it is important to understand effective investment strategies when the yen depreciates rather than focusing on how long the yen will continue to depreciate. Investment opportunities may arise when the yen depreciates, so it is important to make sober decisions and choose strategies.
What happens when the yen depreciates
It is difficult to predict how long the depreciation of the yen will last, but it is possible to consider the effects of the depreciation of the yen from past experiences. By analyzing the effects of the depreciation of the yen and its merits and demerits, we may be able to obtain clues to grasp how our lives will change and the outlook for domestic and international corporate stock prices. Also, there is a possibility that new opportunities will arise for individual investors.
Effects of the depreciation of the yen: corporate profits and losses
Many large Japanese companies are exporters and are benefiting from the depreciation of the yen. Among these companies, the biggest beneficiariesTOYOTA MOTOR CORPORATION (TM.US)That's it. This automobile manufacturer has stated that operating profit will increase by 45 billion yen every time the yen depreciates.
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Meanwhile, the continued depreciation of the yen is likely to continue to hurt importers' earnings due to various cost increases. According to data from Tokyo Shoko Research, as of 2023/11, 49 companies have gone bankrupt due to the depreciation of the yen. Dairy and other companies have gone bankrupt due to the high cost of imported feed and other raw materials.
Sony (SONY.US)For, the company has diverse business fields, and the impact of the depreciation of the yen on each sector is different. The gaming and electronic products sector benefited from the depreciation of the yen, while businesses such as semiconductors and film production, mainly in the US, were affected.
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Effects of the depreciation of the yen: major changes in personal life
As the depreciation of the yen progresses, there are various effects on individual lives. Here are a few of the main effects:
Increase in the price of imported goods: When the yen depreciates, the price of imported goods rises. This is because more yen is needed to obtain the foreign currency required when purchasing imported goods. In particular, there is a possibility that the prices of things that are dependent on imports such as food and energy will rise, putting a burden on households.
Increased cost of international travel: The depreciation of the yen increases the cost of international travel. Since the amount of yen required to buy foreign currency in yen increases, there is a possibility that travel expenses will increase.
Increased asset value in foreign currency: If you have assets in foreign currency, the depreciation of the yen will increase your asset value. If you exchange foreign currency-denominated assets for yen when yen depreciates, you can earn more yen.
Things to do when the yen depreciates · Investment strategies for depreciation of the yen
When the yen depreciates, it is important for individuals to choose smart investment strategies. The depreciation of the yen is generally viewed as favorable to export companies, but its ripple effects also have an impact on individual lives. Here, I will explain the points to consider when the yen depreciates and investment strategies that can be implemented.
Countermeasures against the depreciation of the yen ① Exchange rate and investment in US stocks (foreign stocks)
The biggest difference between investing in US stocks (foreign stocks) and investing in Japanese stocks is the presence or absence of an effect on exchange rates. As a return on investing in US stocks, in addition to capital gains, it is also possible to obtain exchange gains, and “double return” can be said to be the appeal of investing in US stocks. For example, if the dollar-yen rate in 2022/2 was around 115 yen per dollar and US stocks were purchased, the dollar-yen rate was added at 147 yen per dollar in 2022/10, so in just 8 months, the valuation value based on yen currency generated a valuation gain of close to 30% due only to exchange rate fluctuations. Also, the depreciation of the yen is progressing, which means a reduction in assets against the US dollar. By owning high-dividend US stocks, such as dividend aristocrats, it is attractive as a risk hedge while receiving dividends from US stocks over the medium to long term.
Since most American companies are global companies, they are competitive in markets around the world, and risk diversification effects can be expected even in an environment where yen depreciates.
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Countermeasures against depreciation of yen ② Investing in foreign currency deposits
Foreign currency deposits are financial products for depositing in foreign currency, and interest rates are usually higher than Japanese savings accounts and time deposits. In a phase where yen depreciates, exchange gains can be expected if you have foreign currency deposits. For example, if a foreign currency deposit is managed and it is 10,000 dollars, exchange gains are generated when the yen depreciates, and yen per dollar increases, so the amount of Japanese yen at the time of receipt also increases.
Countermeasures against the depreciation of the yen ③ Investing in mutual funds
A mutual fund is a financial product in which a professional fund manager manages money invested by investors, and a portfolio consisting of many financial products such as stocks and bonds is constructed. By using mutual funds, individual investors can entrust their assets to professional managers, and risk diversification and proper management can be expected.
Among foreign currency-denominated mutual funds, base prices and distributions are displayed in foreign currency, and there are cases where the yen depreciates. When yen depreciates, foreign currency-denominated assets are higher in yen conversion, so there is a possibility that a large amount of yen can be received.
Countermeasures against the depreciation of the yen ④ Investing in real estate investment
One characteristic of overseas real estate investment is that rent income obtained in the currency of the country where the investment was made comes in. For example, in American real estate investment and Cambodian real estate investment, the rent obtained is paid in US dollars. If you exchange this US dollar rent for Japanese yen, you can get more Japanese yen during periods when the yen appreciates. Also, if a property purchased when the yen appreciates is sold when the yen depreciates, it is expected that profit when converted to yen will increase in the same way as rent income. Note that overseas real estate is also bought and sold in local currency, and if sold when the yen depreciates, there is a possibility that profit when converted to yen will increase compared to when the yen appreciates.
There are various approaches to investing that make effective use of the depreciation of the yen, but risk management is key. As market fluctuations and unpredictable factors increase the risks associated with investing, careful and planned investments are necessary. You are required to make a calm decision by considering your own financial situation and risk tolerance.
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