4 ms·

So does this effect on its own mean that the yen becomes more expensive compared to the US dollar?

TheDong 3y ago
If you're able to predict with high confidence how this effects the yen/usd rate, then you can make a huge amount of money on fx arbitrage. We don't really know how this will play out, and people's guesses for how it will play out are to some degree already priced into the current rate.
- stale2002 3y ago
  > If you're able to predict with high confidence how this effects the yen/usd rate, then you can make a huge amount of money on fx arbitrage. Thats not true. It could be the case that the effect of interest rates on exchange rates is obvious to everyone, and therefore it is already priced in. Interest rates are not an obscure, arcane thing. Lots of people in finance know how they work, and know how they effect various parts of the economy.
  - dkarras 3y ago
    OP is talking about future predictions though, not "priced in" stuff. If you are able to predict (predict being the key term here, you are predicting... the future) the exchange rate, you can make a lot of money, yes.
- seanmcdirmid 3y ago
  Japanese housewives were famous for carry trade on low Japanese interest rates or discrepancies in exchange rates (taking out loans in Japan, lending money outside of Japan). See: https://documentwomen.com/mrs-watanabe https://documentwomen.com/mrs-watanabe If you can identify a flaw in a government's monetary strategy, you can always do some arbitrage to take advantage of it, and people do that.
caddemon 3y ago
It seems a small raise but yeah theoretically raising interest rates should strengthen the currency to USD, because with higher interest rates there is less reason to move the currency to USD. That's just the first order effect though.
beiller 3y ago
No because USA's central bank is raising rates as well. Only when the policies differ do the currencies move. So Yen seems to have been falling for awhile since their central bank lagged USA. It would probably be a poor choice to dump USD for Yen IMO.
- reducesuffering 3y ago
  That's old news. They last raised in July '23, 8 months ago, and the most recent FOMC (Fed) Summary of Economic Projections[0] has no one indicating any raise in the foreseeable future. Rate cuts are projected. [0] https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20231213.pdf https://www.federalreserve.gov/monetarypolicy/files/fomcproj...

If you're able to predict with high confidence how this effects the yen/usd rate, then you can make a huge amount of money on fx arbitrage. We don't really know how this will play out, and people's guesses for how it will play out are to some degree already priced into the current rate.

stale2002 3y ago
> If you're able to predict with high confidence how this effects the yen/usd rate, then you can make a huge amount of money on fx arbitrage. Thats not true. It could be the case that the effect of interest rates on exchange rates is obvious to everyone, and therefore it is already priced in. Interest rates are not an obscure, arcane thing. Lots of people in finance know how they work, and know how they effect various parts of the economy.
- dkarras 3y ago
  OP is talking about future predictions though, not "priced in" stuff. If you are able to predict (predict being the key term here, you are predicting... the future) the exchange rate, you can make a lot of money, yes.
seanmcdirmid 3y ago
Japanese housewives were famous for carry trade on low Japanese interest rates or discrepancies in exchange rates (taking out loans in Japan, lending money outside of Japan). See: https://documentwomen.com/mrs-watanabe https://documentwomen.com/mrs-watanabe If you can identify a flaw in a government's monetary strategy, you can always do some arbitrage to take advantage of it, and people do that.

caddemon 3y ago

It seems a small raise but yeah theoretically raising interest rates should strengthen the currency to USD, because with higher interest rates there is less reason to move the currency to USD. That's just the first order effect though.

beiller 3y ago

No because USA's central bank is raising rates as well. Only when the policies differ do the currencies move. So Yen seems to have been falling for awhile since their central bank lagged USA. It would probably be a poor choice to dump USD for Yen IMO.

reducesuffering 3y ago
That's old news. They last raised in July '23, 8 months ago, and the most recent FOMC (Fed) Summary of Economic Projections[0] has no one indicating any raise in the foreseeable future. Rate cuts are projected. [0] https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20231213.pdf https://www.federalreserve.gov/monetarypolicy/files/fomcproj...