Today’s point The dollar / yen strengthens (yen depreciation) due to the rise in US long-term interest rates The three major factors that move the dollar / yen, the most important is the “Japan-US interest rate difference” The dollar / yen exchange rate, which is an important factor that drives the exchange rate, moves in line with the purchasing power average in the long run. I would like to introduce the opinion of Mr. Masayuki Kubota, Chief Strategist of Rakuten Securities Economic Research Institute. The dollar strengthened (yen depreciation) due to the rise in US long-term interest rates By the end of March, the dollar strengthened rapidly (yen depreciation) in the foreign exchange market, putting it on the 110 yen level per dollar. The dollar strengthened in the foreign exchange market, reflecting the rise in long-term dollar interest rates (10-year government bond yields) faster than expected. While Japan’s long-term interest rate (10-year government bond yield) did not move significantly at around 0%, the dollar long-term interest rate rose to the 1.7% level. As a result, the dollar strengthened (yen depreciation), taking into account the widening long-term interest rate differential between Japan and the United States and the shift of investment funds from the yen to the dollar.Monthly transition between the dollar / yen exchange rate and the long-term (10-year) interest rate differential between Japan and the United States: January 2018 to March 2021
Note: Created by Rakuten Securities Economic Research Institute As you can see from the chart above, since the beginning of 2019, the US long-term interest rate has been subject to aggressive rate cuts and monetary easing by the US Federal Reserve (Fed). Was plummeting. It went down even further when the corona shock occurred in February 2020. However, after that, US long-term interest rates will start to rise. As the US economy recovered from the corona shock and recovered rapidly, the rise in US long-term interest rates gained momentum and the dollar’s appreciation (yen depreciation) further progressed. Thus, the greatest force that moves the dollar / yen is the change in the interest rate differential between Japan and the United States. However, the dollar / yen pair is not moving on its own. It is considered that the three forces, which will be described later, influence each other and move.