There’s a new Mr Yen in town

JEROME Powell is Mr Yen. He has been for some time, but it has taken a while for the world to catch on.

This is a simplified version of the narrative that emerged after the Japanese currency fell to another big round number – this one being 160 per dollar. You would think Japan has no agency and that something that should have been apparent all year has suddenly come into view: the biggest driver of the yen’s depreciation in 2024 is the yawning gap in interest rates between Japan and the United States. Even stray yen bulls stake much on the Federal Reserve, which Powell leads, reducing borrowing costs later this year.

That the yen’s fluctuations owe a great deal to Washington shouldn’t be a revelation. Bets on American rates have been the dominant force in the US$7.5 trillion-a-day currency market for at least two years. The yen isn’t the only one to suffer, but the retreat has been remarkable. It’s down more than 12 per cent against the greenback this year; the next biggest loser is the Thai baht with a drop of 7 per cent. Watching when the Japanese government will next intervene to cushion the slide has become secondary to guessing how the yen will react to key US data, such as the Fed’s preferred gauge of inflation.