Trending Now
We have updated our Privacy Policy and Terms of Use for Eurasia Group and its affiliates, including GZERO Media, to clarify the types of data we collect, how we collect it, how we use data and with whom we share data. By using our website you consent to our Terms and Conditions and Privacy Policy, including the transfer of your personal data to the United States from your country of residence, and our use of cookies described in our Cookie Policy.
{{ subpage.title }}
Banknotes of Japanese yen are seen in this illustration picture taken June 15, 2022.
What’s happening to the yen, in plain English
Japan’s yen was trading at just a hair under 152 to the US dollar Wednesday, the weakest rate in 34 years, triggering speculation about a government intervention. But what the heck does that mean?
The background. Japan’s economy has had a weird problem for a long time: deflation. While most central banks worldwide have set high interest rates to combat inflation, Japan only last week ended its controversial negative interest rate policy.
The problem. Your economics textbook says the yen should have risen a bit. Higher interest rates make money more scarce — supply and demand gets to work — and voila.
Not quite.
Wary of spooking consumers, the Bank of Japan emphasized its commitment to keeping borrowing costs low. The US Federal Reserve, meanwhile, has been signaling it will keep interest rates high (and thus, dollars scarce relative to yen) for a while longer. Essentially, investors looking ahead dumped their yen and bought greenbacks.
The politics. A weak yen worsens Prime Minister Fumio Kishida’s already shaky position by making Japan’s imports — particularly energy — more costly. Tokyo may now have to sell dollars and buy yen to prop up its currency, but the optics are poor.
“It's not a great look for the Bank of Japan to take historic steps that should have strengthened the yen and then for the opposite to happen, causing the Ministry of Finance to jawbone the currency to prop it up,” says Eurasia Group analyst David Boling.
Biden sticks with Powell as Fed Chair amid rising inflation
Jon Lieber, head of Eurasia Group's coverage of political and policy developments in Washington, shares insights on US politics:
Why did President Biden renominate Jay Powell to be the chairman of the Fed, and who's his No.2, Lael Brainard?
Well, Powell by all accounts has done a pretty good job of managing the Fed through the coronavirus pandemic. He dusted off the playbook, first pioneered by Chairman Bernanke during the financial crisis, and he's largely continued the relatively easy monetary policy of his predecessor at the Fed, now Treasury Secretary, Janet Yellen. With inflation growing the way it has over the last several months, Biden now owns the policies of the Fed and is essentially endorsing what Powell has been doing and giving Powell the political cover to continue to keep rates low for longer, or as many people expect, raise them slightly over the next 12 months in order to fight inflation.
Who is Lael Brainard? Well, she's a longstanding member of the Board of Governors. She was thought to be the favorite to replace Powell if President Biden decided to replace him, but instead Biden gave her a promotion to vice chair. The vice chair has sort of an amorphous role. The last Vice Chair, Rich Clarida, who leaves this post in February, had a significant role in rethinking how the Fed approaches periods when inflation runs a little bit hotter than they want it to, which means that structurally we're going to have more loose monetary policy for a longer period of time. Biden also has three other seats to fill on the board, including the vice chair over supervision, who if Biden follows in the footsteps of other financial regulators they've appointed, is likely to appoint somebody who's going to be tougher on banks, more skeptical of cryptocurrency and tough on things like fintech and payments. But those guys might face a hard time getting confirmed, unlike Powell and Brainard, who are likely to cruise to an easy confirmation sometime in the next couple of months.